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Tax Information and Other Issues Related to Saving
for College
Changing tax provisions may provide you with
a valuable financing resource. Read on!
What
is the Taxpayer Relief Act?
The Taxpayer Relief Act was originally created in 1997 to provide a package
of education related tax credits, interest deductions, and penalty-free
IRA withdrawals effective January 1998. The law was revised and renamed
in May 2001. The provisions in the Economic Growth and Tax Reconciliation
Act of 2001 became effective January 2002.
What
are the provisions of the 2001 Tax Reconciliation Act?
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Hope Scholarship — A tuition tax credit for qualified higher education expenses
for the first two years of college. It is available to parents and others
who pay college tuition for students attending at least half time. It
reduces a family's overall federal tax burden. A maximum tuition tax credit
of $1,650 per student for the first two years of college is available
for families with joint incomes below $110,000 (single filers below $55,000).
Lifetime
Learning Tax Credit — A $2,000 tuition
tax credit for qualified higher education expenses for college juniors,
seniors, and graduate students. Eligibility is phased out at the
same income levels as the Hope Scholarship.
Tuition
Deduction — Taxpayers
with adjusted gross incomes of up to $65,000 single filers ($130,000
for married taxpayers filing jointly) are entitled to a maximum
deduction of $4000 and taxpayers with adjusted gross incomes of
up to $80,000 for single filers ($160,000 for married taxpayers
filing jointly) are entitled to a maximum deduction of $2000.
Student
Loan Interest Deduction — A maximum $2,500
in annual interest paid for the full term of qualified educational
loans is deductible for taxpayers with joint incomes below $140,000
(single filers below $70,000).
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What
is the difference between a tax credit and tax deduction?
A tax credit reduces the amount of taxes owed dollar for dollar. The adjusted
gross income (AGI) is reduced for a tax deduction, thereby reducing taxes
owed, but not dollar for dollar.
When will the benefits of the 2001 Tax Reconciliation Act
end?
The provisions of the act generally expire on December 31, 2010 in compliance
with the Congressional Budget Act.
When and how do I file for the credit
or deduction?
You file the credits and deductions on your annual federal tax return.
You will receive a 1098-T from a private servicer on behalf of Johns Hopkins
University. The 1098-T will be helpful in determining your eligibility
for the tax benefits.
•Information for Parents
and Students on the IRS Form 1098-T
•NOTE: A Form 1098-T will
automatically be mailed to your permanent address
For more information about 1098-T forms, go to http://www.1098-T.com or call 877-467-3821.
I receive financial aid, but I did pay
some of the tuition. How will that affect the credit or deduction?
Tuition paid, net of grant aid (federal, state, private, and university
assistance), is eligible for the credit. Loans do not reduce the available
credit.
Can I take both the Hope or Lifetime Learning tax credit
and the tuition deduction?
The Hope or Lifetime Learning Tax credit and the deduction cannot be taken
in the same tax year.
Where can I get more information about the Hope & Lifetime
Learning Scholarships?
For a summary of the Federal tax benefits for tuition and fees, go to http://www.nasfaa.org/annualpubs/taxbenefitsguideintrops.html
I still have questions about the tax benefits. Who can
answer them?
If you have further questions on tax benefits and how they will affect
you, contact a tax advisor or visit http://www.ed.gov.
I am a student who received scholarship or grant funding during the tax year. Am I required to report the scholarship or grant funds as income on my tax return?
Some college scholarships and grants are subject to taxation as income by the federal government. It is your responsibility to calculate and report the taxable portion of your scholarships and grants on your tax return. Any scholarship/grant award(s) that exceeded the total value of tuition, fees, and the cost of books that you received during the calendar year is subject to taxation and should be reported as income in filing your personal tax return. If you have further questions, you may refer to "Tax Information for Students" on the Internal Revenue Service Website at http://www.irs.gov/individuals/students/index.html. Click on Taxable Income for Students. You may call the Internal Revenue Service. The toll free number is 1-800-TAX-1040.
Other
Helpful Information About Saving for College
What
is a 529 Plan and where can I find out more about it?
A 529 plan an investment strategy designed to help families save for future
college costs. 529 plans are operated by most states and for the most
part provide tax benefits to the person who participates in the plan.
These tuition plans allow families to "lock-in" current tuition costs at in-state public colleges and universities. These funds may also be used to pay tuition and fees associated with private colleges and universities. Families may begin paying into the fund years before students are ready to attend a college or university. For more information on prepaid plans, contact your state higher education agency.
For comprehensive information about 529 plans, visit
http://www.savingforcollege.com.
Johns Hopkins University is a member of the Independent 529 Plan, a national consortium of private colleges and universities. Families of freshmen students may prepay for their senior year at current tuition rates through the Independent 529 Plan. Tuition certificates purchased through the Independent 529 Plan must be held for a minimum of 36 months. Families will pay slightly less than the current tuition rate because participating schools discount the cost of tuition by one half percent per year. For more information about this plan, visit http://independent529plan.org.
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