1099 Tax Software Blog

A student will not be able to qualify for the Hope Credit and American Opportunity Credit both since they are the same credit. Also, a student will not qualify for the Lifetime Learning Credit and the Hope Credit in the same year.

The Hope Credit is limited to the first 2 years of post-secondary education. The student must be enrolled in school at least part-time. If a student is convicted of a drug offense or felony the credit will be lost. Also, if the student’s income is over $47,000 the credit is gradually reduced in its amount, and totally phased out once the taxpayer’s income is over $57,000. For joint filers, this number is increased to $94,000 and $114,000.

“Qualifying expenses” are a bit tricky and they do not include expenditures for room and board, insurance, and athletic fees. The IRS Says qualified expenses are: “the tuition and fees paid at most colleges and universities for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer.

The IRS also says, “Only certain expenses for course-related books, supplies, and equipment qualify.”

Another important detail to note is that a student can not claim the Hope Credit if he or she is a dependent of someone else. For instance, if the student has a parent or guardian that lists him or her in the “exemptions” section of their tax return, the student his or herself can not qualify for the credit. However, there is a chance that the student’s guardian can qualify for the credit as long as the student meets the requirements listed above.

The Small Business Health Care Tax Credit helps businesses afford the cost of health care for their employees. Millions of businesses received postcards from the IRS in April that let them know about the new tax credit. In the case that a business did not receive a postcard form the IRS, it still may be eligible for the tax credit.

Eligibility is determined by three rules:

1.) Providing health care coverage – the employer must cover a minimum of 50 percent of health care for some of its workers. The rate is based on the single rate of health coverage.

2.) Firm size – employers must have less than 25 full time workers or 50 half time workers.

3.) Annual wage – average annual wages must be less than $50,000 per year to qualify

Up to 35 percent of the premium costs for a business are covered by the credit. 25 percent is covered for tax exempt employers, and both taxable and tax exempt organizations may qualify for the credit. There is a gradual reduction of the credit for an organization as the average wages increase along with the number of full time workers.

The American Opportunity Tax Credit is available for Americans to offset the cost of college. The credit can be claimed through December 31, 2010 for expenses paid during the 2009-2010 school year. The American Opportunity Credit is the new name of the Hope Credit. The credited was renamed after changes were made to the maximum amount that could be claimed per calender year among other changes.

The American Opportunity Tax Credit and the Lifetime Learning Credit can not be claimed in the same year for one student. The choice between the two credits should depend on which one is more beneficial for the taxpayer. Taxpayers may be eligible for up to a $2,500 tax credit depending on the amount they spend for qualified educational expenses. Up to 40 percent of the credit is refundable, and the IRS details more information about the credit in a recent newsletter with six facts about the credit:

Six Facts about the American Opportunity Tax Credit

There is still time left to take advantage of the American Opportunity Tax Credit, a credit that will help many parents and college students offset the cost of college. This tax credit is part of the American Recovery and Reinvestment Act of 2009 and is available through December 31, 2010. It can be claimed by eligible taxpayers for college expenses paid in 2009 and 2010.

Here are six important facts the IRS wants you to know about the American Opportunity Tax Credit:

This credit, which expands and renames the existing Hope Credit, can be claimed for qualified tuition and related expenses that you pay for higher education in 2009 and 2010. Qualified tuition and related expenses include tuition, related fees, books and other required course materials.

The credit is equal to 100 percent of the first $2,000 spent per student each year and 25 percent of the next $2,000. Therefore, the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualifying expenses for an eligible student.

The full credit is generally available to eligible taxpayers who make less than $80,000 or $160,000 for married couples filing a joint return. The credit is gradually reduced, however, for taxpayers with incomes above these levels.

Forty percent of the credit is refundable, so even those who owe no tax can get up to $1,000 of the credit for each eligible student as cash back.

The credit can be claimed for qualified expenses paid for any of the first four years of post-secondary education.

You cannot claim the tuition and fees tax deduction in the same year that you claim the American Opportunity Tax Credit or the Lifetime Learning Credit. You must choose to either take the credit or the deduction and should consider which is more beneficial for you.

Complete details on the American Opportunity Tax Credit and other key tax provisions of the Recovery Act are available at IRS.gov/recovery.

Links:

Tax Benefits for Education: Information Center
Publication 970, Tax Benefits for Education
YouTubeVideo:

Education Credits (Parents): English | Spanish | ASL

Audio File for Podcast:

American Opportunity Tax Credit

The American Opportunity Credit that was signed into law in 2009 is actually a modification of the Hope Credit. Therefore, the Hope Credit is now known as the American Opportunity Credit for 2010.

No taxpayer can claim both the American Opportunity Credit and Lifetime Learning Credit for the same student in one year. Both credits can be claimed, however, for different students for one year.

2009 was the last year that the Hope Credit could be claimed, and it was only for students at Midwestern disaster area schools. For that year, the Hope Credit was extended to up to $3,600 for those particular students.

The IRS limited claims on the Hope Credit for 2009: “You can claim the Hope credit only if at least one eligible student is attending an eligible educational institution in a Midwestern disaster area.”

However, for 2010, the American Opportunity Credit is the credit that taxpayers should look to qualify for.

The maximum amount for the American Opportunity Credit is $2,500 per student with the first $2,000 of qualified educational expenses being included and up to 25% of the the next $2,000 spent on qualifying educational expenses being included. Thus, if at least $4,000 are spent on qualifying educational expenses, a taxpayer will likely qualify for the maximum $2,500 credit.

As mentioned previously, it is the taxpayer who supports the student that will qualify for the credit, and if the student supports his or herself, then they will qualify for the credit.

The American Opportunity Credit is limited to the first 5 years of post-secondary education. The student must be enrolled in school at least part-time. If a student is convicted of a drug offense or felony the credit will be lost. Up to 40% of the credit may be refundable. The $2,500 amount is for qualifying expenses only.

“Qualifying expenses” are a bit tricky and they do not include expenditures for room and board, insurance, and athletic fees. The IRS Says qualified expenses are: “the tuition and fees paid at most colleges and universities for the enrollment or attendance of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer.

The IRS also says, “Only certain expenses for course-related books, supplies, and equipment qualify.” The supplies and books do not need to be purchased directly from the institution to qualify as well.

Another important detail to note is that a student can not claim the American Opportunity Credit if he or she is a dependent of someone else. For instance, if the student has a parent or guardian that lists him or her in the “exemptions” section of their tax return, the student his or herself can not qualify for the credit. However, the student’s parent guardian can qualify for the credit as long as the student meets the requirements listed above.

Form 1098-T is an information return used by educational institutions to report student information to the IRS. The form has information about the student including the student’s name, taxpayer identification number, address, academic status, and enrollment. The form also includes information about qualified educational expenses such as tuition and related expenses, and information on scholarships and grants that the student has received.

Every student that meets the reporting requirements for Form 1098-T must have an information return filed for them by their educational institution. A student can request a copy of their 1098-T from their institution and use the information to help them claim tax credits. The 1098-T information return does not have all of the information that is required to claim the credit, but it offers some of the required information.

Claiming the tax credit is not required by students. Students similarly are not required to file Form 1098-T but they may request a copy to help them apply for tax credits or have the information for their own financial records. The Hope Education Credit, American Opportunity Credit (an extension of the Hope Credit), and Lifetime Learning Credit are three educated related tax credits that students may qualify for.

Essentially, the credit is mostly to relieve the tax burden on parents and students who are not dependents of others who are paying for their own education. There are several requirements for the credit for both taxpayers and the student whose qualified expenses that the credit is being claimed for. Students may also claim the credit for their own taxes if they are not dependents of others.

Students can qualify for the Hope Education Credit if the meet certain requirements. The Hope Credit offers up to a $1650 tax credit for qualified students. The credit is claimed for expenses paid for by the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer.

The American Opportunity Credit extends the Hope Credit for up to $2,500 as a credit instead of $1650. The student for whom the credit is claimed can be enrolled up to 4 years instead of 2. Also, up to 40% of the credit is refundable. The American Opportunity Credit is available since the year 2009.