Hope Scholarship Tax Credit

First, a tax credit is a nice benefit.  A credit acts dollar for dollar to remove taxes owed by the tax payer.  Unlike a deduction which only applies a percentage of the deduction towards decreasing the tax liability, the tax credit is 100% applied to the tax liability.  Here is more information on the tax credit, but, please refer to your financial/tax advisor for the final word on this tax credit and how to use it in your situation.

Amount of the Credit

The hope scholarship tax credit provides a scaled amount of the first $4000 of eligible expenses.  The credit is 100% of the first $2000 of eligible expenses.  For the next $2000 in expenses, the credit is 25%.  So, for $4000 of eligible expenses, the tax credit amount is $2500 max.  (Note: the credit is higher for some areas like the Gulf Opportunity Zone which increases the maximum to $3600).

What is really nice is that the tax credit is refundable up to 40% of the amount.  If your tax obligation is less than the tax credit, then up to 40% is refunded to the taxpayer.  So you may end up with zero tax liability and get a refund back based on the excess hope scholarship tax credit.

Qualified Educational Expenses

These include:

• Tuition
• Fees
• Course Materials.  These would be required textbooks

These do not include

• Student activity fees
• athletic fees
• insurance
• all other non academic related costs

The credit is only available for the first 4 years of higher education expense per student.  The credit can also be used for the first 4 years of postsecondary (graduate) education.

Income Phase Out

$80,000-90,000 for single filers and $160,000-$180,000 for married filing jointly.

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