The Hope Scholarship Credit, or Hope Credit, is a tax credit offered by the US Government for expenses paid for higher education. A tax credit means that the benefit is applied after taxes are deducted whereas a tax deduction means that the benefit is used to reduce the amount of taxable income — the value on which taxes owed for a given year are calculated. The Hope Scholarship Credit is one of two education credits offered by the US Government. The other is the Lifetime Learning Credit. Additionally, there is an education deduction that, if eligible, may give a taxpayer an even lower amount of taxes owed. Since a taxpayer cannot claim more than one benefit in terms of the two credits and the deduction, it’s important for the taxpayer to know the requirements for all three in order to make an informed decision for which is the better route given his or her circumstances.
There are a number of eligibility factors for the Hope Scholarship Credit. The education expenses must be the proper type, namely tuition and some other required enrollment or attendance expenses, and they must be paid to an eligible higher education institution, which includes colleges, universities, vocational schools, and other types of higher education institutions. Even some schools outside the United States are eligible as they also participate in the Department of Education’s Federal Student Aid programs. You can simply call the institution and ask to determine whether a given institution is eligible for the Hope Scholarship Credit.
The expenses paid must have been for higher education received by the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent who is claimed on the tax return. Additionally the student must be enrolled at least half time in the qualified institution. There are other requirements that determine a student’s eligibility for the Hope Scholarship Credit. For example, the student must not have completed two or more years of higher education and he or she must not have a felony drug conviction.
The maximum Hope Scholarship Credit available is 1,650 US Dollars (USD) per eligible student. Therefore one tax return may claim more than 1,650 USD in Hope Scholarship Credits if there is more than one eligible student claimed on a given tax return. The credit is determined as follows: 100% of the first 1,100 US Dollars spent on qualified higher education expenses, and then 50% of the next 1,100 US Dollars spent on qualified education expenses. Payments paid by a third party, such as your employer, are considered as paid by you for purposes of calculating the Hope Scholarship Credit. The credit may be reduced for families that receive a higher income as determined by their modified adjusted gross income (MAGI).
There are many more limitations to a taxpayer’s eligibility for the Hope Scholarship Credit, and, because tax laws change, you should research the issue further with available Internal Revenue Service (IRS) information and/or your tax preparation service in order to make sure you are making a fully informed decision related to the various education tax incentives.