Tax Incentives have greatly expanded access to college. The majority of Southeast students are eligible for one or more educational tax benefits.
In 1997 the Federal Taxpayer Relief Act was passed to help individuals and families pay for higher education. The following information regarding these tax incentive programs has been taken from the MOHELA "Tax Incentives" brochure. Please consult your tax preparer with any questions regarding these programs.
- Hope Scholarship Program
- Lifetime Learning Credit
- Student Loan Interest Deduction
- Education IRA's
- IRA Withdrawals for Higher Education Expenses
- Qualified State Tuition Program
- Missouri Savings for Tuition (MO$T) Program
Southeast Missouri State University has outsourced the 1098-T's to Educational Computer Systems, Inc. (ECSI). In order to elect to receive your 1098-T form electronically, qualified students should expect an "Email Consent Blast" from ECSI beginning in December. To sign up for an Electronic 1098-T Form, simply reply to the email giving ECSI the authorization to do so. Online access to information regarding your account will be available by mid-January at www.ecsi.net/1098T. Otherwise, your 1098-T Form will be mailed to your permanent address, and postmarked no later than January 31.
For questions regarding your online form at the above Web site, please call (toll free)1-866-428-1098.
A tax credit valued at a maximum of $1500 per year for the first two years of college.
Eligible taxpayers may claim a nonrefundable Hope Scholarship Credit against their federal income taxes. Taxpayers must claim an eligible student as a dependent on their tax returns, unless the credit is for the taxpayers or their spouses (who also may be eligible students).
For each student, taxpayers may receive a 100 percent tax credit for the first $1,000 of qualified out-of-pocket expenses. They also may claim a 50 percent credit on the second $1,000 for qualified expenses. Qualified expenses include tuition and required fees less any grants, scholarships and other tax-free educational assistance.
The credit can be claimed for students who are in their first two years of college or vocational school and who are enrolled at least half-time in a degree or certificate program. (However, if convicted of a drug-related felony before the end of the tax year when a credit applies, students are ineligible to use the credit).
This credit is phased out when the adjusted gross income of joint filers is between $80,000 and $100,000. For single filers, the phase-out is between $40,000 and $50,000 of adjusted gross income.
A Hope Scholarship Credit and a Lifetime Learning Credit cannot both be claimed in the same year for the same student's expenses.
Lifetime Learning Credit
Additional tax credit opportunities beyond the first two years of college.
A family may claim a 20 percent tax credit for the first $5,000 of tuition and fees paid each year through 2002, and thereafter for 20 percent of the first $10,000. This credit may be claimed for any number of years.
This tax credit is available for tuition and fees paid—less grants, scholarships and other tax-free educational assistance. Students must be enrolled in at least one course at an eligible institution. The maximum credit is determined on a per family basis, regardless of how many eligible students are in the family.
A family may be able to claim this tax credit for some of its students and the Hope Scholarship Credit for others—provided students and taxpayers meet the criteria for each credit. The Lifetime Learning Credit is phased out with the same income limits as the Hope Scholarship Credit.
Student Loan Interest Deduction
The interest taxpayers pay on loans used for eligible educational expenses may be deducted from their taxable income. (The loans must have been borrowed for the taxpayer, spouse or dependents who were enrolled at least half-time.) But this deduction cannot be taken by a taxpayer who is being claimed as a dependent on another taxpayer's return.
The maximum deduction is $2,500. Taxpayers may take the standard deduction or itemize deductions. This deduction may be used only for the first five years when interest payments on the loans are required. Deferral and forbearance time may extend the five years.
Married taxpayers must file jointly. But the deduction is phased out for joint filers with an adjusted gross income between $60,000 and $75,000 (between $40,000 and $55,000 for single filers).
Deposits up to $500 into an Education IRA may be made for each child under age 18. Parents, other family and friends, and even children may contribute to Education IRA's. A child may have more than one Education IRA. However, total contributions for a child in all the child's IRA's may not exceed the $500 limit during a taxable year.
Earnings in this IRA will accumulate tax-free. Withdrawals also are tax free if the money is used to pay for eligible expenses, including room and board. Withdrawals can be used for any eligible course of study, even if the student is enrolled less than half-time. However, when money is used from an Education IRA, neither the Hope Scholarship nor Lifetime Learning Credits may be claimed in the same year.
When a child reaches age 30, his/her Education IRA must be closed or transferred to a younger member of the family.
The ability to contribute to an Education IRA is phased out when the taxpayer is a joint filer with adjusted gross income between $150,000 and $160,000 (between $95,000 and $110,000 for a single filer).
IRA Withdrawals for Higher Education Expenses
Taxpayers may withdraw money from an IRA, (including a Roth IRA) without penalty for their allowable education expenses—or for those of a spouse, child or even grandchild. Students must attend an eligible school. Room and board may be included if the student is enrolled at least half time.
Withdrawals may not be used to cover expense payments made with grants, scholarships and other tax-free educational assistance.
Federal income tax is owed on the amount withdrawn, but the 10 percent early withdrawal penalty does not apply—provided the amount does not exceed the student's allowable expenses.
Qualified State Tuition Program
Any person—parents, grandparents, godparents, friends or even the child—may contribute to a Qualified State Tuition Program (QSTP). The beneficiary (i.e. the student) pays tax on the earnings from contributions to the plan, but the tax is postponed until money is withdrawn from the plan.
There are no income limitations for contributing to a QSTP. But contributions cannot be made to both a QSTP and an Education IRA for the same beneficiary in the same year. However, tuition and fee expenses paid with QSTP money may be eligible for the Hope Scholarship Credit or the Lifetime Learning Credit.
The use of QSTP's to save for room and board expenses is retroactive to August 20, 1996.
You may check out various state QSTP's at http://www.savingforcollege.com/.
The Missouri Savings for Tuition (MO$T) Program
This program has the same federal tax features described for Qualified State Tuition Programs. And it has these additional features:
- Contributors to a particular beneficiary's account may deduct up to $8,000 on Missouri state income tax returns. Withdrawals used for the beneficiary's qualified educational expenses are exempt from Missouri's state income tax.
- The maximum amount a beneficiary may receive from his/her account is $100,000. Beneficiaries may attend any federally approved post secondary institutions—in or out of Missouri, including some foreign schools.
- If beneficiaries do not use all the money in their accounts, the money may be transferred to members of their extended families.
Call toll free at (888) 414-5678 for more information about the MO$T Program or visit http://www.missourimost.org/.