Education Tax Credits

The Internal Revenue Code provides both tax credits and deductions that may be taken to reduce the federal income tax burden for students or those paying the costs of a students higher education. Briefly, credits directly reduce the amount of income tax owed, while deductions reduce the amount of taxable income upon which income taxes are computed. Per IRS regulation, the UW reports all tuition charges, financial aid, grant or scholarship payment information for students on the 1098T.

The UW does not report any payment information to the IRS since students may pay other fees on their student accounts. Information is reported for the current calendar year only. Amounts prepaid for future quarters/years will not be reported.

Expenses for books, supplies and/or equipment are not reported to the IRS. Students must keep the receipts and report these expenses when filing a tax return.

Hope Tax Credit

Eligibility and limitations:
  • student must be enrolled at least half-time during at least one academic period that begins during the tax year
  • student may not have had a drug felony conviction in the year that the credit applies
  • for undergraduate educational expenses
  • applies only to first two years of post-secondary education
  • may be claimed for only two tax years
Amounts:
  • 100% of the first $1,200 of tuition and fees paid for higher education
  • 1/2 of the next $1,200 of tuition and fees paid
  • up to a maximum credit of $1,800 per student

The Hope Tax Credit applies to qualified tuition and related expenses less scholarships, grants, and other tax-free tuition benefits PAID the previous calendar year. The credit is available to parents of dependent students or
to students who are NOT claimed as dependents on their parent’s federal tax return. Note that the HOPE Tax Credit is nonrefundable which means that it can reduce the amount of income tax paid to zero but may not be refunded.

Lifetime Learning Credit

Eligibility and limitations:
  • up to $2,000 for undergraduate, graduate and continuing education coursework taken to acquire or improve job skills
  • there is no limit on the number of years the credit can be claimed for each student
Amounts:
  • up to $2,000 of qualified education expenses

The Lifetime Learning Tax Credit allows students or the parents of dependent students to claim a credit for qualified education expenses paid for all students enrolled in eligible educational institutions, including the UW. Like the Hope Tax Credit, this credit is nonrefundable. This credit lets taxpayers claim a maximum credit of $2,000 per taxpayer (20% of up to $10,000 paid in higher education expenses) for payments made in the calendar year. It is available to parents of dependent students or to students who are NOT claimed as dependents on their parents’ federal tax return. The maximum credit is $2,000 per family, not per student.
Taxpayers CANNOT take both the Hope and the Lifetime Learning Credit in the same year for the same student.

If you are unable to claim the HOPE or LIFETIME Learning Tax Credits, you may still be able to deduct qualified higher education expenses from your income. For those earning $80,000 or less a year ($160,000 if married
and filing jointly), you may deduct up to $4,000 per year of qualified tuition and fees paid to the UW.

The preceding information and that which follows is for general information only, and does not constitute tax advice. For your convenience we have provided links to Other Useful Web Sites. Because income tax rules are complicated, it may be helpful to consult with the IRS, directly, or a tax advisor.

Who Is Eligible For The Education Tax Credits

The full value of both the Hope Tax and the Lifetime Learning tax credits is available to:

  • married taxpayers filing jointly with a modified adjusted gross income (MAGI) of $116,000 or less
  • single taxpayers with a MAGI of $58,000 or less for calendar year 2008

Taxpayers with a low tax liability may not be able to take all the credits, as the credits are nonrefundable, thus limited to taxpayers’ total federal income tax obligation. Tax liability is the total amount of tax due; including both the balance due with the filing of the tax return and amounts paid throughout the year such as those from wage withholding and estimated tax payments.

Comparison of Education Credits

Lifetime Learning Credit Hope Credit
Up to $2,000 credit per return Up to $1,800 credit per eligible student
Available for all years of postsecondary education and
for courses to acquire or improve job skills		 Available ONLY until the first 2 years of post- secondary
education are completed
Available for an unlimited number of years Available ONLY for 2 years per eligible student
Student does not need to be pursuing a degree
or other recognized educational credential		 Student must be pursuing an undergraduate degree
or other recognized education credential
Available for one or more courses Student must be enrolled at least half time
for at least one academic period beginning during the year
Felony drug conviction rule does not apply No felony drug conviction on student’s record

Qualified Tuition and Related Expenses

Qualified tuition and related expenses are the tuition and fees an individual is required to pay in order to be enrolled at or attend an eligible educational institution such as the University of Washington.

It does not matter if the expenses were paid by cash, check, credit card or borrowed funds. Qualified education expenses do not include amounts paid for:

  • any course or other education involving sports, games, or hobbies, unless the course or other education is part of the student’s degree program
  • penalty charges and fees associated with room, board, student activities, athletics, insurance, books, equipment, transportation, and similar personal, living, or family expenses
  • course-related books, supplies, equipment and nonacademic activities, except for amounts required to be paid to the institution as a condition of enrollment or attendance

Qualified expenses are reduced by tax-free grants, scholarships, fellowships, tuition exemptions and employer-provided educational assistance.

For questions regarding tuition charges, scholarships or financial aid recorded on the Student Database, email taxquest@u.washington.edu, or call 206-221-2621.

University Reporting of Expenses and Aid Received

The University compiles information of qualified expenses charged and grant aid received for all students who were registered during the calendar year. This information is reported to the IRS.

If more information on the specific information reported to students is needed, call Student Fiscal Services at (206) 221-2621during normal business hours, or email taxquest@u.washington.edu

Obtaining Your 1098T Information

The University of Washington will mail you an IRS Form 1098T at the end of January. If you are registered for Winter quarter, the form will be mailed to your billing address, otherwise it will be sent to your permanent address.

You may also print the information contained on the 1098T from MyUW Personal Services. As you do not submit this
form to the IRS, an official form is not necessary to claim the tax credits.

Claiming the Credits

Use IRS Form 8863 to determine the amount of the credit. Be sure to read the instructions that accompany the form.

If you need further assistance, contact the IRS or a tax advisor. The University CANNOT provide assistance regarding your eligibility and/or the calculation of the credit.

Education Savings Account (ESA)

Taxpayers can invest up to $2,000 a year for each child under age 18. All earnings are entirely tax free, if they are used to finance a higher education.

Please review IRS publication 970 for specific information.

IRA Withdrawal

The Internal Revenue Code allows people under the age of 59 1/2 to withdraw money for higher education expenses from a regular IRA or the new Roth IRA without paying a penalty for early distribution. However, tax may be owed on at least part of the amount distributed. These funds may be used for the taxpayer’s own higher education expenses, or for those of their spouse, child or grandchild.

Deduction for Interest on Education Loans

Taxpayers may deduct up to $2,500 in student loan interest paid in the previous tax year. The interest paid on the student loans may be for the taxpayer, the taxpayer’s spouse or dependent. You cannot take a student loan deduction if your modified adjusted gross income (MAGI) is $70,000 or more ($140,000 or more if you are married and file a joint return).

Tuition and Fees Deduction

You may be able to deduct qualified tuition and related expenses paid during the year for yourself, your spouse, or a dependent. You cannot claim this deduction if your filing status is married filing separately or if another person is entitled to claim an exemption for you as a dependent on his or her tax return. You cannot claim this deduction if your modified adjusted gross income (MAGI) is $80,000 or more ($160,000 or more if you are married and file a joint return), or if you were a nonresident alien for any part of the year and did not elect to be treated as a resident alien for tax purposes.

The tuition and fees deduction can reduce the amount of your taxable income by up to $4,000. This deduction is taken as an adjustment to taxable income. This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). This deduction may be beneficial to taxpayers who cannot take either of the education credits because their income is too high. Please review IRS Publication 970 for specific information.

Other Useful Resources

Other resources that you might find useful for further information on the tax credits include:

Frequently Asked Questions about the Hope and Lifetime Learning tax credits.

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