Hope Education Credit
A few decades ago, a high school degree was more than enough to obtain a well paying job and even rise to an executive or managerial position. However, those days are long gone, and today, a college degree is essential in order to succeed. If you want to obtain a high paying job, have a degree of job security and wish to move up the corporate ladder, then a college education is an absolute must. As a part of its financial aid plans for college going students, the federal government issues a number of student loans and awards thousands of scholarships, education grants, tax exemptions and exemptions on educational loan repayments. In addition to covering the students’ tuition fees and living expenses, these incentives and plans also enable students coming from under-privileged areas to fulfill their dreams of obtaining a college education.
What is the Hope Education Credit?
The Hope education credit is one of three tax credits available to help students and their families offset the costs of higher education by reducing the total amount of taxes owed by a student or their family. The Hope education credit and lifetime learning credit both were introduced in 1997, as important features under the Taxpayer Relief Act. This act was drafted by then US president, Bill Clinton. Both these acts allowed middle and working class families to avail up to $1800 in tax exemptions per student, depending on the region where their children went to school. There are no limits on the number of students from one family who can claim Hope education credit. These exemptions do not apply to high
income families, and as such the benefit goes exclusively to the families who actually deserve it.
A brief look at the American Opportunity Tax Credit
Under the directions of President Obama, the Hope Education Credit has been increased to $2500 in tax exemptions per student per academic year. In the designated ‘Midwestern Disaster Areas’ of Arkansas, Illinois, Indiana, Iowa, Missouri, Nebraska and Wisconsin, this amount has been increased to $3600 .In case a family or a student owes no taxes, the IRS actually awards them $1000 under this act, which has been renamed to the American Opportunity Tax Credit (AOC). Moreover, the AOC allows students and their families to avail tax exemptions for four years of postsecondary education, whereas the Hope education credit could only be claimed for the first two years of a college education. Additionally, expenses for ‘course materials’ including books, supplies, electronics and other equipment required for a course of study are automatically deducted from the total taxes owed.
How do I apply for education credits?
If you are enrolled in an accredited university, community college or vocational institute, you can claim education credits for your own or your family’s tax returns. In order to apply, you must first calculate the tuition fees and other expenses you have paid during the current tax year. Students must also have taken at least half of the required normal workload during a semester in order to qualify for an education credit. The final process is to fill out parts 1 and 3 of the form 8863 and submit it with your or your parents’ form 1040. Once filed, the IRS then reviews tax records and financial statements before issuing tax exemptions under the Hope education credit or the American Opportunity Tax Credit.