Additional education tax credits available for some students

For certain students and the parents of certain students, there could be additional tax relief available on their 2008 tax return in connection with tuition paid by December 31, 2008. On October 3rd, the Emergency Economic Stabilization Act was signed into law, and that law included a two-year extension for two education tax breaks, the Hope Credit and the Lifetime Learning Credit. These are among the tax provisions known as "extenders" which only continue to exist as long as Congress votes to keep them alive.

The Standard Credit for Most Taxpayers

In general, the Hope credit is limited to a maximum of $1,800, calculated this way: 100% of the first $1,200 spent for qualified education expenses and 50% of the next $1,200 spent. The Lifetime Learning Credit is 20% of the first $10,000 spent, for a maximum of $2,000. Eligibility begins to phase out when the taxpayer’s adjusted gross income reaches $96,000 for a joint return or $48,000 for a single filer and is completely eliminated when income reaches $116,000 or $58,000 respectively.

The credit (standard or revised) is claimed using Form 8863.

The Revised Credit for Certain Students

Buried deep inside the mammoth Emergency Economic Stimulus Act, commonly known as the "Bailout Bill," there is a provision that helps certain students and their parents by allowing double the amount on the Hope Credit and the Lifetime Learning Credit. Eligible students are freshmen and sophomores who attend eligible colleges within the presidentially declared disaster area, after the storms and floods that hit between May 20,2008 and August 1, 2008. This includes some counties in Indiana, Iowa, Illinois, Missouri, Nebraska, Wisconsin, and Arkansas, Kansas, Michigan, and Minnesota.

Students who are affected can claim a maximum Hope Credit of $3,600 and a maximum Lifetime Learning Credit of $4,000.

And, there’s another benefit. For those schools specifically named as eligible, the definition of qualifying expenses has been expanded to include required books, supplies and equipment and reasonable room and board costs (subject to conditions and requirements).

View the list of affected counties that are eligible for the doubled credit. This list of affected counties begins on page 4. It should be noted that, though the Midwest Disaster Area list includes Kansas, Michigan, and Minnesota, there are no eligible counties within these three states.

More information about the Hope Credit and the Lifetime Learning Credit is available in IRS Publication 970.