Office of Financial Aid
Tax Credits - Forms, Links, & Help

The National Association of Financial Aid Administrators publishes The Parent and Student Guide to Federal Tax Benefits for Tuition and Fees which will provide you with excellent general information about these benefits.

Tax Incentives For Higher Education Expenses (IRS web site)
Notice 97-60, the Taxpayer Relief Act of 1997, established tax incentives for certain higher education expenses. This Notice contains questions and answers on the Hope Scholarship Credit and Lifetime Learning Credit, a deduction for student loan interest, and creating Education Individual Retirement Accounts.

IRS Publication 970 for 2005
Tax Benefits for Education for use in preparing 2005 Returns.

IRS Form 8863 for 2005
The form to use to claim Hope and/or Lifetime Learning Tax Credits.

Hope Scholarship Credit
Beginning January 1, 1998, taxpayers may be eligible to claim a non refundable Hope Scholarship Credit against their federal income taxes. The Hope Scholarship Credit may be claimed for the qualified tuition and related expenses of each student in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent) who is enrolled at least half-time in one of the first two years of post secondary education and who is enrolled in a program leading to a degree, certificate, or other recognized educational credential. The amount that may be claimed as a credit is generally equal to: (1) 100 percent of the first $1,000 of the taxpayer's out-of-pocket expenses for each student's qualified tuition and related expenses, plus (2) 50 percent of the next $1,000 of the taxpayer's out-of-pocket expenses for each student's qualified tuition and related expenses. Thus, the maximum credit a taxpayer may claim for a taxable year is $1,500 multiplied by the number of students in the family who meet the enrollment criteria described above.

Lifetime Learning Credit
Beginning on July 1, 1998, taxpayers may be eligible to claim a non refundable Lifetime Learning Credit against their federal income taxes. The Lifetime Learning Credit may be claimed for the qualified tuition and related expenses of the students in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent) who are enrolled in eligible educational institutions. If the taxpayer is claiming a Hope Scholarship Credit for a particular student, none of that student's expenses for that year may be applied toward the Lifetime Learning Credit.

Tax-Free Benefits
Certain payments or special programs’ distributions are free of tax when used for qualifying educational expenses. Such expenses cannot duplicate one another or be used to claim education credits or deductions.

Scholarships, fellowships, etc.
Generally tax-free when used to pay qualified expenses for degree candidates at eligible schools.

Coverdell Education Savings Account (ESA)
Distributions that don’t exceed the beneficiary’s qualified education expenses aren’t taxed. Unlike the items listed below, primary or secondary school expenses are eligible for ESA benefits. Beneficiary must be under age 18 when an ESA contribution is made; annual contribution limit is $2,000 and is reduced if contributor’s income is between $95,000 and $110,000 ($190,000 and $220,000, joint return).

Qualified Tuition Program
distributions from state- or educational institution-sponsored programs aren’t taxed to the extent used for qualified education expenses.

Education Savings Bond
interest on qualified U.S. Savings Bonds is tax-free if proceeds are used to pay qualified education expenses and income is under $59,850 ($89,750, joint return). The exclusion phases out as income rises to $74,850 ($119,750, joint return).

Employer-provided educational assistance
employers can give up to $5,250 in tax-free benefits each year; courses do not have to be work-related.

Cancelled student loan
although a cancelled debt is usually taxable, a student loan may not be if the cancellation depends on you working for a certain time in a specified occupation for a section 501(c)(3) organization.

Tuition and Fees Deduction
for a student for whom no education credit is claimed. Qualifying expenses must not have been paid with any other tax-free benefit. A maximum deduction of $4,000 if taxpayer’s income does not exceed $65,000 ($130,000 on a joint return); $2,000 maximum if income is between $65,000 and $80,000 (between $130,000 and $160,000, joint return).

Deduction for work-related education
claim costs of education required to keep your job or to maintain or improve skills needed in your present work, but not if the education is needed to meet the minimum requirements of your position or is part of a program to qualify you for a new trade or business.

Student loan interest deduction
maximum deduction of $2,500 for interest paid on qualified student loans. Phases out as income rises from $50,000 to $65,000 ($100,000 to $130,000, joint return).

How to read your 1098 - T Form
You can get the general instructions from the IRS Web Site at www.irs.gov or by calling 1-800-TAX-FORM (1-800-829-3676). Here are the instructions on the reverse of the 1098 - T.

1098 - T Instructions for Student

Troy University makes reimbursements or refunds of qualified tuition and related expenses to you, must furnish this statement to you. You, or the person who may claim you as a dependent, may be able to take either the tuition and fees deduction or claim an education credit on Form 1040 or 1040A for the qualified tuition and related expenses that were actually paid in 2005. The amount shown in box 1 or 2 may represent an amount other than the amount actually paid in 2005. Troy University must include its name, address, and information contact telephone number on this statement. It may also include contact information for a service provider. Although the service provider may be able to answer certain questions about the statement, do not contact them or Troy University for explanations of the requirements for (and how to figure) any allowable tuition and fees deduction or education credit that you may claim. For more information about the deduction or credit, see Pub. 970, Tax Benefits for Education, Form 8863, Education Credits, and the Form 1040 or 1040A instructions.

Box 1. Shows the total payments received for qualified tuition and related expenses less any related reimbursements or refunds.

Box 2. Shows the total amounts billed for qualified tuition and related expenses less any related reductions in charges.

Box 3. Shows any adjustment made for a prior year for qualified tuition and related expenses that were reported on a prior year Form 1098-T. This amount may reduce any allowable education credit you may claim for the prior year. See Form 8863 or Pub. 970 for more information.

Box 4. Shows the total of all scholarships or grants administered and processed by the eligible educational institution. The amount of scholarships or grants for the calendar year (including those not reported by the institution) may reduce the amount of any allowable tuition and fees deduction or the education credit you may claim for the year.

Box 5. Shows adjustments to scholarships or grants for a prior year. This amount may affect the amount of any allowable tuition and fees deduction or education credit you may claim for the prior year. See Form 8863 for how to report these amounts.

Box 6. If this box is checked, the amount in box 1 or 2 includes amounts for an academic period beginning January-March 2006. See Pub. 970 for how to report these amounts.

Box 7. Shows the total amount of reimbursements or refunds of qualified tuition and related expenses made by an insurer. The amount of reimbursements or refunds for the calendar year may reduce the amount of any allowable tuition and fees deduction or education credit you may claim for the year.

Box 8. Shows whether you are considered to be carrying at least one-half the normal full-time workload for your course of study at the reporting institution. If you are at least a half-time student for at least one academic period that begins during the year, you meet one of the requirements for the Hope credit. You do not have to meet the workload requirement to qualify for the tuition and fees deduction or the lifetime learning credit.

Box 9. Shows whether you are considered to be enrolled in a program leading to a graduate degree, graduate-level certificate, or other recognized graduate-level educational credential. If you are enrolled in a graduate program, you are not eligible for the Hope credit, but you may qualify for the tuition and fees deduction or the lifetime learning credit.

Office of Financial Aid
134 Adams Administration Building
Troy, Alabama 36082
Phone: 1-800-414-5756
Assistance Available 24 Hours A Day/7 Days A Week