Tax credit

Coralie Carlson

Students cheered when Congress passed two federal education tax credits last fall that can save students up to $1,500 — but that elation is turning to confusion as thousands of University students start filing for the tax break.
And since federal law requires businesses to give employees their W-2 forms by today, students will have the materials to begin.
But for many students like Carlson School of Management sophomore Jennifer Meyer, the tax process will be the same as years past.
“When I get the sheet, it just looks so confusing that I just send it to my dad,” Meyer said.
The University sent information fliers to students with their winter quarter bills and mailed another 85,000 help sheets to students last week. But many students still don’t know if they qualify for the tax reduction and how much they will save.
Meyer, like many other students, still didn’t know about the new tax break.
To help befuddled students, University officials set up a help-line specifically to answer questions about the tax credits.
In October, Congress passed two tax credits: the HOPE Scholarship for first- and second-year students and the Lifetime Learning Credit for students beyond their second year.
Students can receive the tax credit themselves, or parents or guardians can benefit from the tax reductions if they claim students as dependents on their returns, explained Beth Nunnally, the University’s tax director.
Eligible students must meet several criteria. First, only people who owe the government money will benefit. The credits will reduce the amount of tax students or their parents have to pay, but will not add to a rebate.
Second, eligible applicants have to pay for tuition and mandatory fees — like student services fees — from earnings, savings, gifts, loans or an inheritance.
Next, HOPE Scholarship recipients must be enrolled in classes at least part-time. There is no credit requirement for the other tax break.
Finally, the credit is targeted toward students and families in lower- and middle-income ranges.
“I think it’s important for the people who are really struggling to make ends meet,” said Susan Goese, a second-year medical student who admitted that taxes intimidate her.
The tax credit starts to be phased out at the $40,000 income level and those who make over $50,000 don’t receive any benefit. For couples, the credit is phased out between $80,000 and $100,000. But eligible students don’t automatically get a tax reduction; they need to calculate their savings.
The HOPE Scholarship repays taxpayers dollar-for-dollar of the first $1,000 spent on tuition and mandatory fees. Fifty percent of the next $1,000 is also chalked up for the credit. So, if a student or parent paid at least $2,000 on tuition and mandatory fees at the University last year, they could subtract $1,500 from their total amount of taxes due.
The Lifetime Learning Credit is a little smaller. It is calculated as 20 percent of the first $5,000 spent on tuition and mandatory fees. The maximum tax credit is $1,000 per taxpayer, regardless of how many qualifying students appear on that taxpayers’ return.
Because this is the first year the Internal Revenue Service is implementing these statutes, many of the requirements are vague, Nunnally said. The IRS already proposed 69 pages of additional regulations to clarify the statutes, but they won’t take place until next year.
The University listed the proposed regulations on its Web site for parents and students to consult.
“This is as much information as you’re going to find anywhere,” Nunnally said.