Hope Scholarship Tax Credit
- Last Updated: Sunday, 18 November 2018
The Hope Scholarship Credit can help offset the cost of higher education by directly reducing the amount of income taxes paid. The Hope Credit has been around since January 1998, and allows individuals to claim a tax credit of up to $2,500 in qualified education expenses for each student enrolled in school.
Hope Scholarship Credit
In this article, we’re going to talk about the Hope Scholarship Credit, which is also referred to as the Hope Credit. We’re going to start by discussing the eligibility rules, followed by some definitions of qualifying expenses, institutions, and students. Many of the Hope Credit program rules are similar to those of the Lifetime Learning Credit. In fact, taxpayers cannot claim both the Hope and the Lifetime Learning Credit in the same tax year for the same student.
Later on, we’re going to finish this topic with a brief discussion of the HOPE Scholarship, which is an entirely different program run by the state of Georgia.
Tax Credits versus Deductions
The Hope Scholarship Credit, as increased by the American Opportunity Tax Credit, is equal to 100% of qualified tuition and related expenses not in excess of $2,000, plus 25% of those same expenses in excess of $2,000, but not in excess of $4,000. This means the maximum credit remains at $2,500 in 2018 and 2019.
It’s important to understand the difference between a deduction and a credit. A tax deduction allows taxpayers to reduce income that is subject to taxes. A tax credit is applied directly to a tax bill, and is far more valuable than a deduction.
For example, if a taxpayer owes the federal government $7,500 in income taxes; the Hope Scholarship Credit would reduce this tax bill to $7,500 minus $2,500, or $5,000 in 2018 or 2019.
Before an individual can claim this credit, they must meet some fairly narrow eligibility rules, or criteria. For example, a taxpayer can only claim the Hope Credit if they meet all three of the following requirements:
- They are the individual that pays for qualifying higher education expenses such as tuition.
- The education payments, or expenses, mentioned above must be for a qualified student.
- That qualified student must be the taxpayer, their spouse, or a dependent, which is claimed on their federal tax return.
In addition to the qualifying rules mentioned above, it’s not possible to claim the Hope Scholarship Credit if any of the following four conditions applies:
- Tax filing status is married filing separately.
- The taxpayer is listed as a dependent on another person’s federal income tax return.
- The taxpayer, or their spouse, was a non-resident alien during any portion of the year, and that person did not elect to be treated as a resident alien for tax purposes.
- The taxpayer is already claiming the Lifetime Learning credit for the same student during that tax year.
Qualified Students, Expenses, and Institutions
It’s necessary to further define this eligibility policy, since each set of the rules above specifically mention the word “qualify” for the following three terms: students, educational institutions, and expenses.
To be eligible for this credit, there must be a qualifying student, which the IRS tax law defines as:
- Individuals that have not completed the first two years of postsecondary education (These credits typically apply to freshman and sophomore years of college).
- Students that did not have expenses that were used to calculate a Hope Scholarship Credit in any two earlier tax years.
- Students enrolled at least half-time in an academic program that leads to a degree, certificate, or other recognized credential.
- Anyone convicted of a federal or state felony involving a controlled substance may not be eligible for the Hope Credit.
Qualifying Educational Institution
It’s fairly easy to be considered a qualifying educational institution under the Hope Credit program. To qualify, the institution must be a college, university, vocational school, or other postsecondary educational institution that is also eligible to participate in the Department of Education’s student aid program.
This would include virtually all accredited public and private postsecondary educational institutions.
The tax law associated with the Hope Credit further defines qualifying expenses as those costs such as tuition, and related fees, required for enrollment or attendance at the qualifying educational institution.
Examples of related qualifying expenses include student activities and fees as well as course books, supplies, and equipment. This rule applies if these expenses are a condition of enrollment, or attendance, at the educational institution.
Typical expenses that would not qualify under the Hope Scholarship Credit include insurance payments, medical expenses, room and board, transportation expenses, or similar types of living and family-related costs. Expenses associated with sports, school clubs, and non-credit courses usually do not qualify for this credit.
In 2018 and 2019, the amount of the Hope Credit an individual can claim on their federal income taxes is reduced if their modified adjusted gross income is over $80,000 for single filers and $160,000 if filing a joint return. The credit is phased out completely if modified adjusted gross income is over $90,000 or $180,000 for joint filers.
The tax form used to apply for the Hope Scholarship Credit is IRS Form 8863.
The HOPE Scholarship is run by the state of Georgia, and it’s an acronym for Helping Outstanding Students and Pupils Educationally. The HOPE Scholarship is not a tax credit, but a college scholarship offered to students meeting the following eligibility criteria.
The basic student requirements of this scholarship program include:
- Must be a resident of the state of Georgia
- Graduated high school with a 3.0 GPA; a “B” average or better
- Maintain a 3.0 GPA while in college
The HOPE Scholarship pays full tuition costs plus $150 per semester for books. The student must attend a public university / college in Georgia until the semester in which they take their 127th academic hour, which is roughly the time required to earn an undergraduate bachelor’s degree.
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