The Hope credit, provided by 26 U.S.C. § 25A(b), is available to taxpayers who have incurred expenses related to the first two years of postsecondary education. For this credit to be claimed by a taxpayer, the student must attend school on at least a part-time basis. The credit can be claimed for education expenses incurred by the taxpayer, the taxpayer’s spouse, or the taxpayer’s dependent.
This credit allows for the first $1,200 in “qualified tuition and related expenses,” as well as half of qualifying expenses between $1,200 and $2,400, to be fully creditable against the taxpayer’s total tax liability. The maximum amount of the credit is $1,800 per eligible student. Students in a qualified Midwestern disaster area may receive up to $3,600.
An eligible student must meet all of the following requirements to deduct the Hope credit:
- be enrolled in one of the first two years of post-secondary education;
- be enrolled in a program that leads to a degree, certificate, or other recognized educational credential;
- be taking at least half of the normal full-time work load for his/her course of study for at least one academic period beginning during the calendar year;
- not have a felony conviction for possessing or distributing a controlled substance.
“Qualified tuition and related expenses” is defined as “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. These qualifying expenses do not include student activity fees, athletic fees, insurance costs, or room and board expenses.
The Hope credit is subject to limitations. First, the credit will be lost if the student is convicted of a felony drug offense. Second, a taxpayer may not take both a Hope credit and a Lifetime Learning Credit or tuition and fees deduction for the same student in the same year. Third, a taxpayer may only take the credit during the first two years of post-secondary education. The credit amount is phased out gradually once a taxpayer’s modified adjusted gross income exceeds $50,000 ($100,000 if filing jointly) and the credit is phased out entirely once a taxpayer’s modified adjusted gross income exceeds $60,000 ($120,000 if filing jointly).
According to Paulsen and Smart, the federal Hope tax credit gets its name from the Georgia State University merit scholarship program of the same name, HOPE (Helping Outstanding Pupils Educationally). Although the Georgia state scholarship is a merit scholarship, the tax credit is not. Perhaps this is why the Hope tax credit lacks a definition for what HOPE stands for.
The Georgia state 1993 lottery-funded Hope scholarship program pre-dates the 1998 federal tax credit by 5 years.
- http://www.irs.gov/publications/p970/ch03.html Publication 970 (2009), Tax Benefits for Education: Hope Credit
- IRS Pub.970, Tax Benefits for Education p.9, 'Students in Midwestern Disaster Areas'
- The Hope Credit and College, IRS and Tax
- Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 2nd edition (St. Paul: Thomson/West, 2007), 37-8.
- Form 8863: Education Credits. http://www.irs.gov/pub/irs-pdf/f8863.pdf
- RS Publication 970 (2006): Tax Benefits for Education. http://www.irs.gov/publications/p970/ch02.html#d0e1756
- IRS. http://www.irs.gov/pub/irs-pdf/p970.pdf
- Michael B. Paulsen & John C. Smart, The Book the Finance of Higher Education: Theory, Research, Policy, and Practice page 351& 352.
- Technical College System of Georgia - Helping Outstanding Pupils Educationally