 |
|||
 |
|||
 |
|||
|
Students and parents who paid college expenses during 2002 may qualify for larger deductions or credits when they file their federal income-tax returns. |
|
Expanded higher-education tax benefits highlighted Submitted by David Manning, USA Funds Services Regional Director, (866) 497-USAF (8723), Ext. 0274 Students and parents who paid college expenses during 2002 may qualify for larger deductions or credits when they file their federal income-tax returns. Recent tax-law changes have added new higher-education tax benefits and expanded several existing benefits. As they prepare their 2002 federal income tax returns, students and families should be advised to see if they qualify for savings under the following higher-education tax benefits: Student-loan interest deduction The new law eliminates the former 60-month limitation on education-loan interest that qualifies for the student-loan interest deduction. Taxpayers now may be able to deduct qualified interest that they were required to pay throughout the term of their student loans. The new law also raises the income limits for taxpayers to qualify for this deduction. Single taxpayers with modified adjusted gross incomes of between $50,000 and $65,000 can take a partial deduction. Single taxpayers whose incomes are below $50,000 qualify for the full deduction. Married taxpayers with modified adjusted gross incomes of between $100,000 and $130,000 also qualify for a partial deduction. The maximum deduction is $2,500. Deduction for higher-education expenses Taxpayers now may qualify to deduct up to $3,000 in qualified higher-education expenses. This new deduction is available to single taxpayers with adjusted gross incomes of $65,000 or less, or married couples who file joint returns reporting incomes of $130,000 or less. In general, expenses eligible for the deduction are tuition and fees paid for an individual or a spouse or dependent. Student-activity fees and fees for course books, supplies and equipment may be included if the student was required to pay those fees to the institution in order to attend. Room and board is not an eligible expense, however. This deduction and higher-education tax credits - such as Hope of Lifetime Learning credits - may not be claimed for the same student in the same year. 529 college-savings plans Students and families may exclude from their taxable income any earnings distributed from state-sponsored Qualified Tuition Programs, commonly known as 529 plans, if the proceeds were used for qualified education expenses. In the case of room-and-board costs, students and families should check with the educational institution to determine the amount considered "reasonable" for that school for the deduction. Taxpayers also may contribute to 529 plans established by one or more education institutions, although any earnings distributed from educational institutions' plans prior to 2004 will be taxable. Coverdell Education Savings Accounts The maximum contribution that students and their families may make to these savings accounts, formerly known as Education IRAs, has been increased to $2,000 per year from $500. Contributions are not deductible, but earnings accrue tax-free for qualified education expenses. Income limits for married couples filing jointly have been increased. Married couples who report a modified adjusted gross income of $190,000 or less may contribute the maximum amount. The maximum contribution is lower for those whose modified adjusted gross incomes are more than $190,000. Married taxpayers whose incomes exceed $220,000 may not contribute to these accounts. Single taxpayers must have incomes of less than $110,000 to contribute. Students and their families now have until the April 15 tax-filing deadline, or the due date of their tax returns - excluding filing extensions - rather than Dec. 31 of the tax year, to make their contribution for the year. Contributions to Coverdell accounts and 529 plans are permitted for the same beneficiary in the same year. Additionally, taxpayers now may take a tax-free distribution from a Coverdell Education Savings Account in the same year that they claim a Hope of Lifetime Learning Higher-education credit, as long as they don't use their Coverdell-account distribution for the same expenses for which they claimed the credit. Employer-provided education benefits The new tax-law changes extend indefinitely provisions that permit students and their families to exclude from their taxable income up to $5,250 in employer-provided education assistance. Beginning with the 2002 tax year, this benefit has been extended to graduate-education costs in addition to undergraduate expenses. Hope Tax Credit Students, their parents or their guardians may claim up to $1,500 for each student for out-of-pocket tuition and fees for each of the first two years of classes toward a degree or certificate from a college or vocational school. Students must be enrolled at least half time to qualify for this tax credit. Single tax filers with modified adjusted gross incomes of $51,000 or more, or joint filers with incomes of $102,000 or more, do not qualify for this credit. Lifetime Learning Credit This credit is available for any education beyond high school, including vocational, college, graduate and professional education. The amount that a taxpayer may claim under the Lifetime Learning Credit equals 20 percent of the first $5,000 of qualified expenses, for a maximum of $1,000. Income limits are the same as for the Hope Credit. You cannot claim both the Hope Credit and the Lifetime Learning Credit for the same student for the same year. Please note that this information is intended as a general summary of these tax benefits. Financial-aid administrators should refer students and their families to a qualified tax adviser or the Internal Revenue Service (IRS) to determine eligibility for any of these benefits. They may reach the IRS on the Web at www.irs.gov or by phone at (800) 829-1040. For additional information, they may order IRS Publication 970, "Tax Benefits for Higher Education." Further information is available in the free USA Funds® brochure "Higher-Education Tax Benefits - Expanded Taxpayer Savings." The brochure is available to view and to order by visiting www.usafunds.org/forms/order_pubs.asp on the USA Funds Web site.
|
|
