New Benefits Reach an Even Greater Population of Taxpayers
RESTON, Va., Feb. 3 /PRNewswire/ -- Higher education pays great dividends,
not only in the form of personal satisfaction and fulfilling employment, but
also through tax credits and deductions. Individuals repaying student loans,
as well as current college students and their parents, may be eligible for
certain benefits that could save them thousands of dollars this tax season.
Wiredscholar.com, Sallie Mae's comprehensive online resource for planning and
paying for college, has information available to help college students,
student-loan borrowers and families maximize these education-related tax
credits and deductions.
Tuition and Fees Deduction
This new benefit for tax years 2002 through 2005 allows taxpayers to
deduct up to $3,000 of tuition and related expenses. Qualifying expenses are
the tuition and fees required for enrollment or attendance at an eligible
college, university or vocational school. These expenses must have been
incurred for the taxpayer, the taxpayer's spouse or the taxpayer's dependent.
The deduction is not available to single taxpayers with adjusted gross
incomes exceeding $65,000, married taxpayers filing jointly with adjusted
gross incomes exceeding $130,000 or married taxpayers filing separately. In
order to claim the deduction, borrowers must file federal tax Form 1040, but
are not required to itemize their deductions. To find out whether they
qualify for this tax deduction, borrowers can call the IRS Help Line at
1-800-829-1040 or, read IRS publication 970, Tax Benefits for Higher
Education, which can be downloaded from the IRS Web site, http://www.irs.gov.
Student-Loan Interest Deduction
A significant amount of interest paid on student loans is tax deductible.
Education-loan borrowers may be able to deduct up to $2,500 in interest paid
each year on loans used to pay for qualified education expenses. To qualify,
proceeds of the loan must have been used for qualified higher education
expenses, including tuition, fees, room, board, supplies and other related
expenses for the taxpayer, the taxpayer's spouse or the taxpayer's dependent.
Beginning in 2002, the tax deduction is available for an unlimited number
of years. The maximum allowable deduction is gradually reduced for single
taxpayers whose incomes exceed $50,000 ($100,000 for married taxpayers filing
jointly), and is not available for those with incomes over $65,000 ($130,000
if filing jointly) or for married taxpayers filing separately.
Borrowers who paid at least $600 in interest on education loans in 2002
will receive a statement called a 1098-E Form this month from their student-
loan lender or servicer. In order to claim the deduction, borrowers must file
using federal tax form 1040 or 1040A, but are not required to itemize their
deductions. To find out whether they qualify for this tax deduction,
borrowers can call the IRS Help Line at 1-800-829-1040 or read IRS publication
970, Tax Benefits for Higher Education, which can be downloaded from the IRS
Web site.
Education Tax Credits
In addition to the above tax deductions, two types of tax credits are
available to post-secondary education students and their parents. These
education tax credits offer students and their families a credit on their
federal income tax bill for tuition and fees incurred at an eligible school.
The HOPE Scholarship provides a non-refundable tax credit of up to $1,500
for each eligible student in the household. The credit is available only
during the student's first two years of college-level study. Students must be
enrolled at least half time in a degree or certificate granting program and
must not have a felony drug conviction on record.
The HOPE Scholarship tax credit covers 100 percent of the first $1,000 in
payments for qualified tuition and fees and 50 percent of the second $1,000.
Expenses that qualify for the HOPE Scholarship include school tuition and
required fees, minus any tax-free grants or scholarships. This tax credit
does not cover room and board, insurance, transportation or medical fees.
The maximum allowable credit is gradually reduced for single taxpayers
whose incomes exceed $41,000 ($82,000 for married taxpayers filing jointly),
and is not available for those with incomes over $51,000 ($102,000 for married
taxpayers filing jointly) or for married taxpayers filing separately. In
order to claim a Hope tax credit, taxpayers must file using federal tax Form
1040 or 1040A and attach Form 8863 (Education Credits), but they are not
required to itemize their deductions. To find out whether they qualify for
this tax credit, taxpayers can call the IRS Help Line at 1-800-829-1040 or
read IRS publication 970, Tax Benefits for Higher Education, which can be
downloaded from the IRS Web site.
The Lifetime Learning Tax Credit provides a non-refundable tax credit of
up to $1,000 per family per year for qualified tuition and related expenses.
To be eligible for the credit the student must be enrolled in one or more
college-level courses during the tax year. The student does not need to be
pursuing a degree. The credit covers the tuition and fees required for
attendance and does not include room and board, insurance, medical,
transportation or living expenses.
The maximum allowable credit is gradually reduced for single taxpayers
whose incomes exceed $41,000 ($82,000 for married taxpayers filing jointly),
and is not available for those with incomes over $51,000 ($102,000 for married
taxpayers filing jointly) or for married taxpayers filing separately.
In order to claim a Lifetime Learning credit, taxpayers must file using
federal tax Form 1040 or 1040A and attach Form 8863 (Education Credits), but
they are not required to itemize their deductions. To find out whether they
qualify for this tax credit, taxpayers can call the IRS Help Line at
1-800-829-1040 or read IRS publication 970, Tax Benefits for Higher Education,
which can be downloaded from the IRS Web site.
Coverdell Education Savings Accounts (Formerly Education IRAs)
Coverdell ESAs are savings accounts set up to pay the qualified education
expenses of a designated beneficiary. Contributions to an ESA are not
deductible, but amounts deposited in the account grow tax free until
withdrawn. Beginning this tax year, individuals can contribute a maximum of
$2,000 (as opposed to a 2001 cap of $500) for any single beneficiary each
year. These funds may be withdrawn tax free to pay qualified education
expenses-elementary, secondary or post-secondary-for the beneficiary. Similar
to other IRA benefits withdrawn for other purposes are subject to a 10-percent
withdrawal tax in addition to the taxpayer's normal tax rate. New this year
are provisions that enable families to take advantage of both Coverdell
Education Savings Accounts and Qualified Tuition Plans to save for future
college expenses.
Early Withdrawals from IRAs
Families also can continue to make penalty-free early withdrawals from
traditional IRAs, Roth IRAs and SIMPLE IRAs to cover qualified higher
education expenses if the student is either the taxpayer, the taxpayer's
spouse, the taxpayer's child or grandchild or the taxpayer's spouse's child or
grandchild. Qualified withdrawals are subject to income tax at the taxpayer's
normal rate, but are not subject to the 10-percent early withdrawal tax.
For this information and other planning and paying for college tools,
visit http://www.wiredscholar.com.
Wiredscholar.com is the foremost online resource for "going-to-college"
information for students, parents and guidance professionals. Launched in
spring 2000, the site is the most comprehensive and objective resource on the
Web for information and interactive tools to assist with college preparation,
evaluation, selection, application and financing, all in one online location.
The site is a four-time "Forbes Favorite" in the college-planning category in
Forbes.com's "Best of the Web." Wiredscholar.com is an independent brand of
Sallie Mae, the nation's largest source of education funding, which extends
the company's commitment to helping students achieve a higher education. For
more information, visit http://www.wiredscholar.com. SLM Corporation and its
subsidiaries, other than the Student Loan Marketing Association, are not
sponsored by or agencies of the United States.
SOURCE wiredscholar.com
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