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7.1 Child Care Credit/Other Credits : Child and Dependent Care Credit & Flexible Benefit Plans
Can I claim the Child and Dependent Care Credit?
If you paid someone to care for your dependent under age 13 or your disabled
dependent or spouse so that you could work or look for work, you may be able
to claim the credit for child and dependent care expenses. For specific information
on how to qualify for this credit refer to Tax Topic 602, Child
and Dependent Care Credit, or Publication 503, Child and Dependent
Care Expenses.
References:
My spouse and I both work and are eligible for the Child and Dependent
Care Credit. May I include my 5 year old son's parochial school kindergarten
tuition cost as a qualified expense in Form 2441, Child Care Expenses?
The expenses for kindergarten do not qualify for the dependent care credit
if the kindergarten is primarily educational in nature. Expenses for school
in the first grade or higher do not qualify for the credit. However, you can
count the part of the expenses of sending your child to school that is for
your child's care if it can be separated from the expenses of education. For
example, you may count the cost of an after school care program even though
the school tuition does not qualify.
References:
I paid into a dependent care benefits plan and the amount is shown
in Box 10 of my Form W-2. However, the cost paid to the child care provider
was more. Can the additional expense not paid into the dependent care benefits
plan and not shown in Box 10 of the W-2 be claimed on Form 2441?
That depends on the amount you elected to have contributed to the flexible
spending arrangement. The exclusion from income for employer-provided benefits
can be as high as $5,000, while the credit for dependent care expenses is
based on annual dollar limits of $3,000 for one person and $6,000 for two
or more persons. You must reduce those dollar limits by the amount of excludible
dependent care benefits. If you had expenses that you paid yourself and the
employer provided benefits were less than the applicable dollar limit, you
can also claim the credit. Complete Part III of either Form 2441 (PDF), Child and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for
Form 1040A Filers, to determine the excluded benefits and whether you can
claim the credit.
Change. The applicable percentage and allowable employment-related
expenses increase beginning in 2003. The maximum applicable percentage is
35 percent and the allowable employment-related expenses are $3,000 for one
qualifying child and $6,000 for two or more qualifying children (Code Sec.
21, as amended by the Economic Growth and Tax Relief Reconciliation Act of
2001). Thus, the maximum credit is $1,050 for one qualifying child and $2,100
for two or more qualifying children.
References:
If my employer did not put the amount I paid into a flexible spending
account for dependent care in box 10 on my Form W-2, can I claim the Child
and Dependent Care Tax Credit?
If the omission was simply a clerical oversight, you may not claim the
child care credit. If the flexible spending account was an eligible plan under
Internal Revenue Code Section 125, the amount of the salary reduction that
was contributed to your account should appear in box 10 of your Form W-2.
Request a corrected Form W-2 from your employer.
You may claim the child care credit if the contribution to your flexible
spending account was less than your annual dollar limitation for eligible
expenses ($3,000 for one person, or $6,000 for two or more persons). Even
if you cannot claim the credit, you must complete Part III of either Form 2441 (PDF), Child and Dependent Care Expenses,
or Form 1040A, Schedule 2 (PDF), Child and
Dependent Care Expenses for Form 1040A Filers, to exclude your employer
provided benefits from your income. If the amount you paid into a flexible
spending account reduced your wages in box 1 of Form W-2, it is considered
an employer provided benefit.
References:
I was under the impression that a Dependent Care Benefit Plan would
benefit me, not penalize me with an increase in taxes. How can my employer
say they provided a benefit in the total amount of $3,000 in W-2, Block 10
when I had $3,000 in wages set aside for dependent care benefits?
The actual mechanism for this type of plan is an agreement to voluntarily
reduce your salary in return for an employer-provided fringe benefit. These
plans must be set up this way because you have a choice of whether to receive
the cash wages or the benefits, which would make the benefit taxable to you.
Therefore, the benefits are actually employer provided or funded. You are
receiving a tax benefit because you are not paying taxes on the money that
is set aside.
References:
How do I complete Form 2441 if I have flexible Spending Account?
You must complete Part III of Form 2441 (PDF), Child
and Dependent Care Expenses , (or Form 1040A, Schedule 2 (PDF), Child
and Dependent Care Expenses for Form 1040A Filers) to claim the exclusion
of the benefits from income even if you cannot claim the credit. Enter your
total employer-provided dependent care benefits on line 12 (this amount should
appear in box 10 of your Form W-2) and your qualified expenses on line 15.
The last six lines of Part III will determine whether you can also take the
credit and what your dollar limit is on qualified expenses. Also Complete
Part I, Persons or Organizations Who Provided the Care.
References:
I am self-employed, but did not have a net profit last year. Is
it correct that we do not qualify for the Child Care Credit on our joint return
even though my wife received dependent care benefits on her W-2 box 10?
Generally, yes. When you complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, which you must do
to claim excluded benefits, line 17 asks you to enter the smallest of:
your dependent care benefits,
your qualified expenses,
your earned income, or
your spouse's earned income.
If you had a loss from self-employment and no other earned income, your
earned income would be $0, unless you can use one of the optional methods
on Form 1040, Schedule SE (PDF), Self-Employment
Tax. That would mean that the amount in box 10 of your wife's Form W-2
would have to be included in income. (For more information on the optional
methods of computing self-employment tax, refer to Publication 533, Self-Employment
Tax, or
Instructions for Form 1040, Schedule SE, Self-Employment
Tax.
The income considered to be earned by a spouse who is a full-time student
or who is incapable of self-care is $250 per month if there's one qualifying
individual in the household, and $500 a month if there are two or more qualifying
individuals. However, this income is deemed to be earned only by one spouse
for any given month. (Code Sec. 21 (d) (2)).
References:
Is a flexible spending account for dependent care a dependent care
benefit?
Yes. If the flexible spending account is providing you with a dependent
care benefit, then it should be reported in box 10 of your Form W-2. These
accounts are funded through a salary reduction, so the contribution to the
account is considered an employer contribution. When you receive a dependent
care benefit from your employer, you must complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, (or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for
Form 1040A Filers) to see if the benefits are fully excluded from income.
You may be able to also claim a credit for child and dependent care expenses
if the excluded benefits are less than the dollar limit on qualified expenses
for the credit.
References:
My divorce decree states that my ex-spouse can claim our daughter
as an exemption on alternate years. I am the custodial parent and pay child
care expenses. Can I claim child care expenses on the years he takes the exemption?
The Child and Dependent Care Credit can only be claimed by the custodial
parent. This is true even if you cannot claim the child's exemption because
the divorce decree allows the other parent to claim the exemption, or you
have released the exemption on Form 8332. Refer to Publication 503, Child
and Dependent Care Expenses, for a complete discussion.
References:
My babysitter refused to provide me with her social security number.
Can I still claim what I paid for child care on my taxes while I worked? If
so, how?
Yes, assuming that you already meet the other requirements to claim the
child care credit, but are missing the required ID number of the provider,
you can still claim the credit by demonstrating "due diligence" in attempting
to secure the needed information.
When the care provider refuses to give the identifying information, the
taxpayer can still claim the credit and is instructed to provide whatever
information is available about the provider (such as name and address) on
the form used to claim the credit Form 2441 (PDF),
Child and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF),
Child and Dependent Care Expenses for Form 1040A Filers). The taxpayer should
write "see page 2" in the columns calling for the missing information. He/she
would write at the bottom of page 2 that the provider refused to give the
requested information. This statement will show that the taxpayer used due
diligence in trying to secure and furnish the necessary information.
References:
As a child care center, are we required to give out tax statements
to any of our parents who request one? Can we refuse to give a tax statement
to someone who has a past due balance with us?
As a care provider, you are required to give your correct name, address,
and Taxpayer Identification Number (TIN) to customers who paid for child care
services during the year. A valid TIN can be the Employer Identification Number
(EIN) of the business or the social security number of a sole proprietor. Form W-10 (PDF), Dependent Care Provider's Identification
and Certification, or a similar statement may be used for such purposes.
A care provider who does not give the customer a correct TIN is subject
to a penalty of $50 for each failure unless the failure is due to reasonable
cause and not willful neglect. The failure of a customer to pay a bill in
full would not normally constitute reasonable cause. The penalty does not
apply to qualified tax exempt care providers.
When the care provider refuses to give the identifying information, the
taxpayer can still claim the credit and is instructed to provide whatever
information is available about the provider (such as name and address) on
the form used to claim the credit Form 2441 (PDF), Child
and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF), Child
and Dependent Care Expenses for Form 1040A Filers). The taxpayer should
write "see page 2" in the columns calling for the missing information. He/she
would write at the bottom of page 2 that the provider refused to give the
requested information. This statement will show that the taxpayer used due
diligence in trying to secure and furnish the necessary information.
References:
I am thinking of having an au pair take care of my child. There
is a $4,000 fee up front and I will be paying $150 a week to the au pair.
What, if any, of this qualifies for the child and dependent care credit is
deductible?
The up front fee may qualify as a child care expense if it is an expense
you must pay in order to obtain care. However, you can only count it toward
the credit proportionately over the duration of the agreement to employ the
au pair. The $150 per week as well as other work related expenses may qualify
as a child and dependent care expense. Please refer to Publication 503, Child
and Dependent Care Expenses for a full discussion.
If your au pair works in your home, you may also be responsible for employment
taxes. Refer to Publication 926, Household Employers Tax Guide,
for more information.
References:
If I send my child who was under the age of 13 to a day camp instead
of a child care facility for the summer, are these deductible expenses?
The cost of day camp, including a camp that specializes in a particular
activity such as soccer or computers, may qualify as child care expense, if
your main purpose in sending your child is to assure the child's well-being
and protection.
References:
I am thinking of having a family member baby-sit for my child full
time in their own home while I work. Are either of us responsible for taxes
on the money I would pay? Can I claim this money as a child care expense even
though my family member is not a registered day care provider?
You may have qualified child care expenses if the family member baby-sitting
is not your dependent or your child under age 19 and you meet all the tests
to claim the Child and Dependent Care Credit. Your family member will be responsible
for paying taxes on the money earned and will be considered to be self-employed.
References:
Can elderly day care payments qualify for the child and dependent
care credit?
Elderly day care payments may qualify as Child and Dependent Care Expenses.
In order to be a qualifying person, the person receiving the elderly day care
must be either your spouse who was physically or mentally not able to care
for himself or your dependent who was physically not able to care for himself
and for whom you can claim an exemption (or could claim an exemption except
the person had $3,050 or more of gross income in the year 2003) (for 2004,
gross income of $3,050 or more). All of the other criteria for claiming the
Child and Dependent Care Credit must also be met.
References:
7.2 Child Care Credit/Other Credits : Child Tax Credit
Can a custodial parent claim the Child Tax Credit if the noncustodial
parent claims the child as a dependent due to the divorce agreement?
The custodial parent cannot claim the Child Tax Credit for a child in the
tax year that the noncustodial parent takes the exemption for that child.
Please refer to the 1040 Instruction Booklet index for the Child Tax Credit.
The referenced pages will explain who qualifies for this credit and how to
calculate it.
References:
Does the Form 8332 (used to release the exemption to the noncustodial
parent) affect the Child Tax Credit?
Yes. The Child Tax Credit can only be claimed by the parent claiming the
exemption. In this case the noncustodial parent would qualify for the dependency
exemption and therefore the child tax credit. Please refer to the
Instructions for Form 1040 or the
Instructions for Form 1040A index
for Child Tax Credit. The referenced pages will explain who qualifies for
this credit, and how to calculate it.
References:
Can you file for the Child Tax Credit and the Child Care Credit,
too?
The Child Tax Credit and the Child and Dependent Care Credit can both be
claimed on the same return. They can be claimed on either Form 1040 (PDF), U.S. Individual Income Tax Return, or Form 1040A (PDF), U.S. Individual Income Tax Return. Please refer to
the
Instructions for Form 1040 or the
Instructions for Form 1040A index for the Child Tax Credit. The referenced pages will explain
who qualifies for the Child Tax Credit, and how to calculate it. Publication 503, Child and Dependent Care Expenses, has more information
for the child care credit.
References:
If I file using filing status married filing separately, can I still
claim the Additional Child Credit?
Yes. You will need to complete Form 8812 (PDF), Additional
Child Tax Credit, and attach it to your Form 1040 or 1040A. Please refer
to the
Instructions for Form 1040 or the
Instructions for Form 1040A index for the Child Tax Credit. The referenced pages
will explain who qualifies for the Child Tax Credit, and how to calculate
it.
References:
Does a grandchild, who is a dependent, qualify for the Child Tax
Credit?
Your grandchild under the age of 17 who is your dependent and is a U.S.
citizen or resident alien is a qualifying child for the child tax credit.
Please refer to the
Instructions for Form 1040 or the
Instructions for Form 1040A index for the Child Tax Credit. The referenced
pages will explain who qualifies for the Child Tax Credit, and how to calculate
it.
References:
Can I get the Child Tax Credit for a child with an ITIN, not a social
security number?
Yes, with an individual tax identification number (ITIN), you can claim
the Child Tax Credit if you otherwise qualify. The Child Tax Credit can only
be claimed by the parent claiming the child as a dependent.
Please refer to the
Instructions for Form 1040 or the
Instructions for Form 1040A index for the Child Tax Credit. The referenced
pages will explain who qualifies for the Child Tax Credit, and how to calculate
it.
References:
My child lived for only 12 days and I never received a social security
number, because the Social Security Administration will not issue a social
security number for a deceased child. Can I still qualify for the Child Tax
Credit?
Yes, you may attach a copy of the child's birth certificate and enter "DIED" in column 2 of line 6c. You will also need to put a
check mark in column 4 of line 6c. Please refer to the
Instructions for Form 1040 or the
Instructions for Form 1040A index for
the Child Tax Credit. The referenced pages will explain who qualifies for
the Child Tax Credit, and how to calculate it.
References:
7.3 Child Care Credit/Other Credits : Credit for the Elderly or the Disabled
Can I get the Credit for the Elderly or the Disabled?
Generally, if you were age 65 or older or disabled and your income and
nontaxable social security and other nontaxable pension are below specified
amounts, you may be able to take this credit. For more details, refer to Tax Topic 603, Credit for the Elderly or the Disabled, or Publication 524,
Credit for the Elderly or the Disabled.
References:
7.4 Child Care Credit/Other Credits : Hope & Life Time Learning Educational Credits
What are the education credits?
There are two credits available, the Hope Scholarship Credit and the Lifetime
Learning Credit.
References:
How does the Lifetime Learning Credit different from the Hope Credit?
Unlike the Hope Credit:
The Lifetime Learning Credit is not based on the student's workload. It
is allowed for one or more courses.
The credit is not limited to students in the first 2 years of postsecondary
education.
Expenses for graduate level degree work are eligible.
There is no maximum period for which the credit can be claimed for each
eligible student.
The amount you can claim as a credit does not vary (increase) based on
the number of eligible students for whom you pay qualified expenses.
References:
How many education credits can I claim?
You can claim only one of the credits for each eligible student per tax
year.
References:
I finished my college sophomore year in June and began my junior
year in September. Can I take both the Hope and Lifetime Learning Credit in
that year?
No, you cannot take both credits in one year for the same student. However,
eligibility for the Hope Credit depends on your status at the beginning of
the calendar year. If you are classified as a second-semester sophomore during
the spring semester and as a first-semester junior during the fall semester
of that same year, the qualified expenses you pay for the fall semester may
be taken into account for the Hope Credit because you had not completed the
first 2 years of your secondary education when the year began.
References:
- Publication 970, Tax Benefits for Education
- Tax Topic 605, Education credits
- Ref (p. 35 of 8/28/01 S 25A draft final regs (ex 3); 25A
(b) (2) (c) )
How is the amount of the Hope or Lifetime Learning Credit determined?
The amount of the credit is determined by the amount you pay for qualified
tuition and related expenses paid for each eligible student and the amount
of your modified adjusted gross income (AGI).
References:
What expenses qualify for the education credits?
Expenses that qualify are tuition and fees required for enrollment or attendance
at any college, vocational school, or other postsecondary educational institution
eligible to participate in the student aid programs administered by the Department
of Education.
Qualified expenses do not include books, room and board, student activities,
athletics (unless the course is part of the student's degree program), insurance,
equipment, transportation, or other similar personal, living, or family expenses.
The cost of books and equipment are generally not qualified expenses because
eligible educational institutions usually do not require that fees for such
books or equipment be paid to the institution as a condition of the student's
enrollment or attendance at the institution.
References:
Are expenses to attend private high schools eligible for the education
credits ?
No. Expenses paid to attend high school do not qualify for the education
credits because a high school is not an eligible educational institution.
An eligible educational institution is any college, university, vocational
school, or other postsecondary educational institution eligible to participate
in a student aid program administered by the Department of Education. It includes
virtually all accredited, public, nonprofit, and proprietary (privately owned
profit making) postsecondary institutions.
References:
Many high school seniors are also enrolled in colleges for dual
academic credits. Are the fees paid to the college eligible for one of the
education tax credits?
Expenses paid for college courses taken while attending high school may
qualify for the Hope Scholarship Credit or for the Lifetime Learning Credit
if the student otherwise meets the qualifications for claiming either of the
credits.
References:
How do I know if my school is eligible to participate in the education
credits?
The educational institution should be able to tell you if it is an eligible
educational institution.
References:
Do I have to be enrolled in college to get the Hope education credit?
Yes. One qualification to claim the Hope credit is that the student be
enrolled in an eligible educational institution (in a program) at least half
time that leads to a degree certificate or other recognized educational credential
for no less than one academic period beginning in the taxable year.
References:
If I put money aside in a college savings plan for my two children,
is that money eligible for either the Hope or Lifetime Learning Credit?
No, an education credit is claimed in the year in which the expenses are
paid, not in the year in which money is set aside in a college savings plan.
You may want to consider setting up an Educational IRA. For more information,
refer to Publication 970, Tax Benefits for Education.
References:
Can I claim an education credit if I am married but file separately?
No. Neither the Hope Credit nor the Lifetime Learning Credit can be claimed
if the individual is married but filed a separate return.
References:
How do I claim the education credits?
The education credits are claimed on Form 8863 (PDF),
Education Credits (Hope and Lifetime Learning Credits), which is attached
to your Form 1040 or Form 1040A.
References:
If I pay college tuition and fees with a scholarship, can I claim
an education credit on Form 8863 for those payments?
No. You cannot claim a credit for the amount of higher education expenses
paid for by tax-free scholarships.
References:
If the amount of qualified tuition and fees I pay is greater than
the amount of my scholarship, should I fill out Form 8863? If I cannot use
Form 8863 because I received a scholarship, what can I do?
You must reduce the qualified expenses by the amount of any tax-free educational
assistance. Do not reduce the qualified expenses by amounts paid with the
student's earnings, loans, gifts, inheritances, and personal savings. Also,
do not reduce the qualified expenses by any scholarship reported as income
on the student's return or any scholarship which, by its terms, cannot be
applied to qualified tuition and related expenses.
References:
How can I get a Form 8863?
You can download this form and the instructions from the Forms
& Pubs section of our web site. You may also call 1-800-829-3676.
References:
Why did I get Form 1098-T?
The information on Form 1098-T may help you determine whether you can claim
an education tax credit.
References:
Who issues the Form 1098-T?
An eligible educational institution that receives payment of qualified
tuition and related expenses generally must issue Form 1098-T, Tuition Payments
Statement, to each student by January 31st.
References:
What information is on Form 1098-T?
The following information should be included on the form.
The name, address, and taxpayer identification number of the educational
institution.
The name, address, and taxpayer identification number of the student.
Whether the student was enrolled for at least half of the full-time academic
workload for at least one academic period.
Whether the student was enrolled exclusively in a graduate-level program
Amount of qualified tuition and fees either paid or billed by the institution
(depending on institution method of reporting).
Scholarship and fellowship grants for the year and adjustments to the
scholarship and fellowship grants for prior years.
Adjustment to tuition and fees for prior years.
Whether any payments made or reported in 2003 pertain to an academic period
beginning January through March 2004.
Total amount of reimbursements or refunds of qualified tuition and related
expenses made to student during 2003 (applicable only if issuer of 1098-T
is insurer).
References:
I am currently going to school and I received a Form 1098-T. What
is this form? How can I claim an education tax credit?
An eligible educational institution (such as a college or university) that
receives payment of qualified tuition and related expenses generally must
issue Form 1098-T, Tuition Payments Statement, to each student by January
31st. You may be able to claim a credit for these expenses by completing Form 8863 (PDF), Education Credits, and attaching
it to your Form 1040.
References:
Do I need to receive a Form 1098-T, Tuition Payments Statement,
from my children's colleges before I can file for the Hope Scholarship Credit
and the Lifetime Learning Tax Credit?
No, there is no requirement that you receive this form before you can claim
these credits.
References:
If tuition was paid by a government subsidized loan, can I still
take the Hope or Lifetime Learning Credit?
If you take out a loan to pay higher education expenses, those expenses
may qualify for the credit if you will be required to pay back the loan. The
credit is claimed in the year in which the expenses are paid, not in the year
in which the loan is repaid.
References:
If education expenses were paid by a school loan that the student
has not began paying back, do the expenses still qualify for the Hope or Lifetime
Learning Credits?
The rule for a school loan is the same as the rule for a government subsidized
loan. Even though the loan proceeds are not income to you, expenses paid from
the loan proceeds may qualify for the Hope or Lifetime Learning Credit if
the loan must be repaid. The education credit is claimed in the year in which
the expenses are paid, not in the year in which the loan is repaid.
References:
I filed my tax return via TeleFile and then I received a form from
my school stating that I was eligible for the Hope Scholarship and Lifetime
Learning Credits. What do I do now?
To claim the credit, you will need to file Form 1040X (PDF), Amended U.S. Individual Income Tax Return, and attach Form 8863 (PDF), Education Credits (Hope and Lifetime
Learning Credits).
References:
Can I use a 1040EZ if I am going to claim education credits?
No, you must use either Form 1040A or Form 1040 along with Form 8863 (PDF), Education Credits (Hope and Lifetime Learning Credits),
to claim the credit.
References:
If I want to take an education credit for my child, do I also have
to claim my child as a dependent?
Yes, you must claim your child as a dependent to take either of the education
credits. If you claim an exemption for your child on your tax return, only
you can claim the credit.
References:
A divorced father pays college tuition directly to the college for
his child who is claimed as a dependent on his ex-wife's return. Is the divorced
father eligible for either of the educational credits - Hope or Lifetime Learning?
No. The divorced father cannot claim an educational credit because he does
not claim the child as a dependent. The ex-wife, however, can claim an educational
credit because she is claiming the child as a dependent and, under a special
rule, is treated as having paid the child's tuition. The child cannot claim
the credit because he is being claimed as a dependent on his mother's return.
References:
What is a Hope Credit?
It is a nonrefundable tax credit for a student's first 2 years of undergraduate
education.
References:
Who can claim the Hope Credit?
Generally, you can claim the Hope credit if all three of
the following requirements are met.
You pay qualified tuition and related expenses of
higher education.
You pay the tuition and related expenses for an eligible
student.
The eligible student is either yourself, your spouse, or a dependent
for whom you claim an exemption on your tax return.
You cannot claim the Hope credit if any of the following apply.
Your filing status is married separately.
You are listed as a dependent in the Exemptions section
on another person's tax return (such as your parents'). See Who
Can Claim a Dependent's Expenses , later.
Your modified adjusted gross income is $51,000 or more ($103,000 or more
in the case of a joint return). Modified adjusted gross income is explained
later under Does the Amount of Your Income Affect the Amount
of Your Credit.
You (or your spouse) were a nonresident alien for any part of 2002 and
the nonresident alien did not elect to be treated as a resident alien for
tax purposes. More information on nonresident alien can be found in Publication 519 , U.S. Tax Guide for Aliens.
You claim the lifetime learning credit for the same student in 2002.
In general, qualified tuition and related expenses are tuition and fees
required for enrollment or attendance at an eligible educational
instititution
Eligible education institution . An eligible educational
institution is an college, university, vocational school, or other postsecondary
educational institution eligible to participate in a student aid program administered
by the Department of Education. It includes virtually all accredited, public,
nonprofit, and proprietary (privately owned profit-making ) postsecondary
institutions. The educational institution should be able to tell you if it
is an eligible educational institution.
To claim the Hope credit, the student for whom you pay qualified tuition
and related expenses must be an eligible student. This
is a student who meets all of the following requirements.
Did not have expenses that were used to figure a Hope credit in any 2
earlier tax years.
Had not completed the first 2 years of postsecondary education (generally,
the freshman and sophomore years of college) before 2002.
Was enrolled at least half-time in a program that leads to a degree, certificate,
or other recognized educational credential for a least one academic period
beginning in 2002.
Was free of any federal or state felony conviction for possessing or
distributing a controlled substance as of the end of 2002.
References:
What is the amount of the Hope Credit?
The maximum credit per student is $1,500 (100 percent of the first $1,000
of qualified tuition and related expenses, plus 50 percent of the next $1,000
of such expenses).
References:
I understand for the Hope Credit I must be in my first 2 years of
college. Does that mean I can take the credit if I am ranked as a freshman
or a sophomore even if I have been attending college for more than 2 years?
The Hope Credit may be claimed for no more than 2 taxable years and may
not be claimed if at the beginning of the taxable year the student has completed
the first 2 years of postsecondary education at an eligible educational institution.
If the student has not claimed a Hope Credit for more than 1 year and if the
educational institution at which the student is enrolled ranks the student
as being less than a first-semester junior at the beginning of the year, the
student may be eligible to claim the Hope Credit.
References:
Is tuition paid to a foreign university eligible for the Hope Credit?
Relatively few postsecondary institutions located outside of the United
States participate in a student aid program administered by the Department
of Education. Therefore, tuition paid to a foreign university usually does
not qualify for either of the education credits. The educational institution
should be able to tell you if it is an eligible educational institution.
References:
I will be able to claim the Hope Credit. What records do I need
to claim this credit?
You should keep all your canceled checks that were used to pay for the
qualifying expenses and any other documentation showing the amount of tuition
and fees paid.
References:
I am currently attending school for a second bachelor's degree.
I completed my original degree several years ago. Am I eligible for the Hope
Credit because I am just entering my second year of this bachelor's degree
program?
No. Since you have already completed your first 2 years of postsecondary
education, the courses that you are now taking do not qualify for the Hope
Credit. However, you may be eligible for the Lifetime Learning Credit.
References:
I have returned to college after several years. I attend a community
college and have not received an associate's degree as of yet. Can I claim
the Hope Credit for tuition I paid this year?
You can only claim the Hope Credit if at the beginning of the year, you
are not classified as having completed the first 2 years of postsecondary
education.
For example, if you attended classes for only one or two semesters, you
would still be in your first 2 years of post secondary school. Generally if
you attended five or more semesters, you would not be considered in your first
2 years of post secondary school even if you have not attained your associate's
degree.
If you don't qualify for the Hope Credit, you may qualify for the Lifetime
Learning Credit.
References:
What is a Lifetime Learning Credit?
A nonrefundable tax credit up to $2,000 per family for all undergraduate
and graduate level education. Figured by taking 20% of the first $10,000 of
qualified educational expenses paid.
References:
Who is eligible for the Lifetime Learning Credit?
Generally, you can claim the lifetime learning credit if all
three of the following requirements are met.
You pay qualified tuition and related expenses of
higher education.
You pay the tuition and related expenses for an eligible
student.
The eligible student is either yourself, your spouse, or a dependent
for who you claim an exemption on your tax return.
The lifetime learning credit is based on qualified tuition and related
expenses you pay for yourself, your spouse, or a dependent for who you can
claim an exemption on your tax return. Generally, the credit is allowed for
qualified tuition and related expenses paid in 2003 for an academic
period beginning in 2003 or in the first 3 months of 2004.
For purposes of the lifetime learning credit, an eligible student is a
student who is enrolled in one or more courses at an eligible
educational institution.
An eligible educational institution is an college, university, vocational
school, or other postsecondary educational institution eligible to participate
in a student aid program administered by the Department of Education. It includes
virtually all accredited, public, nonprofit, and proprietary (privately owned
profit-making) postsecondary institutions. The educational institution should
be able to tell you if it is an eligible educational institution.
You cannot claim the lifetime learning credit if any of
the following apply.
Your filing status is married filing separately.
You are listed as a dependent in the Exemptions section
on another person's tax return (such as your parent's). See Who
Can Claim a Dependent's Expenses, later.
Your modified adjusted gross income is $51,000 or more ($103,000 or more
in the case of a joint return). Modified adjusted gross income is explained
later under Does the Amount of Your Income Affect the Amount
of Your Credit.
You (or your spouse) were a nonresident alien for any part of 2003 and
the nonresident alien did not elect to be treated as a resident for tax purposes.
More information on resident aliens can be found in Publication 519, U.S.
Tax Guide for Aliens.
You claim the Hope credit for the same student in 2003.
References:
I'm a full-time graduate student and am required pay a comprehensive
fee as part of my enrollment. This fee includes student center fees, health
fees, bus fees, and athletic fees. Does this comprehensive fee qualify for
the Lifetime Learning Credit?
If a student is required to pay a comprehensive fee to an eligible educational
institution that includes charges for tuition, fees, and personal expenses,
the portion of the comprehensive fee allocable to personal expenses is not
eligible for the credit. The allocation must be made by the institution using
a reasonable method.
References:
Is the Lifetime Learning Credit used only to reduce the tax people
owe or may it give me a refund even if I do not owe any tax?
Both the Hope Credit and the Lifetime Learning Credit are nonrefundable
credits. This means that the credits may reduce your federal income tax liability
down to zero. However, if you do not owe any tax, the credits will not result
in a refund.
References:
Can the Lifetime Learning Credit be used for a high school student
taking classes at an approved college prior to graduation from high school?
College courses taken while attending high school may qualify for the Hope
Scholarship Credit or for the Lifetime Learning Credit if the student meets
the qualifications for claiming either of the credits.
References:
What information on this Form 1098-T statement from my university
do I use to figure my Lifetime Learning Credit?
If you claim an education credit, keep Form 1098-T with your tax records.
The information on the form will not be used to figure the amount of your
credit. Instead, use Form 8863 (PDF), Education
Credits (Hope and Lifetime Learning Credits), to calculate your credit.
References:
Can nonresident aliens claim the Lifetime Learning Credit for tuition
paid to go to school?
If you are a nonresident alien for any part of the year, you generally
cannot claim the education credits. However, if you are married and choose
to file a joint return with a U.S. citizen or resident spouse, you may be
eligible for the Hope or Lifetime Learning Credit.
References:
I did not attend school this year, but made loan payments on a loan
I previously took out to pay my college tuition. Can I claim a lifetime credit
for the money I used to repay the loan?
No, payments on your student loans do not qualify for the Lifetime Learning
Credit. However, interest on student loans may be deductible for Federal income
tax purposes if you meet certain conditions. For more information, refer to Publication 970, Tax Benefits for Education.
References:
I am a student who is claimed as a dependent on my parent's tax
return. I pay my college tuition out of my own earnings. Can I take the Lifetime
Learning Credit on my tax return?
No, if your parents claim you as a dependent, you cannot claim either of
the education credits. However, any qualifying tuition payments that you made
can be claimed by your parents as paid by themselves and may qualify them
for the Hope or Lifetime Learning Credit.
References:
Am I eligible to claim both my job education expenses (minus 2 percent
of AGI) and the Lifetime Learning Credit on my taxes?
You can not deduct educational expenses and claim a credit for the same
expenses. You must choose one or the other.
References:
If my employer reimbursed my education expenses and included the
reimbursement in my taxable income, is the amount still eligible for the Lifetime
Learning Credit?
The amount included as taxable income is eligible for the Lifetime Learning
Credit. If your tuition is paid by your employer but is not included
in your taxable income, then the amount of the tuition is ineligible for the
education credit. This is because double tax benefits are not allowed.
References:
I am trying to understand what is a qualified expense under the
Lifetime Learning Credit. The guidelines state that books are included in
qualified expenses only if the fee must be paid to the institution as a condition
of enrollment or attendance at the institution. I am required to have books
for classes that I am taking, and I purchased the books from the college bookstore.
Can I add the cost of these books to my qualified expenses?
In general, an educational credit is not available for expenses incurred
to pay for books. The Federal Income Tax Regulations provide an example that
may be helpful: First-year students at College W are required to obtain books
and other reading materials used in its mandatory first-year curriculum. The
books and other reading materials are not required to be purchased from College
W and may be borrowed from other students or purchased from off-campus bookstores,
as well as from College W's bookstore. College W bills students for any books
and materials purchased from College W's bookstore. The fee that College W
charges for the first-year books and materials purchased at its bookstore
is not a qualified tuition and related expense because the books and materials
are not required to be purchased from College W for enrollment or attendance
at the institution.
References:
7.5 Child Care Credit/Other Credits : Other Credits
I heard there is a credit for hiring certain groups of workers,
such as veterans or ex-felons. Is that the same thing as the Work Opportunity
Tax Credit?
The work opportunity credit provides an incentive to hire individuals from
targeted groups that have a particularly high unemployment rate or other special
employment needs. The credit can be as much as 40% of the "qualified first
year wages" you pay to individuals who begin work for you before January 1,
2004. The credit can be claimed by filing Form 5884 (PDF), Work
Opportunity Credit.
An individual is a member of a targeted group if he or she is a:
Qualified recipient of assistance under temporary assistance for needy
families (TANF).
Qualified veteran.
Qualified ex-felon.
High-risk youth.
Vocational rehabilitation referral.
Qualified summer youth employee.
Qualified food stamp recipient.
Qualified SSI recipient.
An individual is not considered a member of a targeted group unless your
state employment security agency certifies him or her as a member. This certification
requirement can be satisfied in either of two ways:
1) On or before the day on which the individual begins work for you, you
have received a certification from your state employment security agency that
the individual is a member of a targeted group, or
2) On or before the day you offer employment to an individual, you complete Form 8850 (PDF), Pre-Screening Notice and Certification
Request for the Work Opportunity and Welfare-to-Work Credits, and send
it to your state employment security agency no later than the 21st day after
the individual begins work.
You must receive the certification before claiming the credit.
Refer to Tax Topic 750, Employer Tax Information, and Tax Info for Business,
on this site for other employer information.
References:
- Form 5884 (PDF), Work Opportunity
Credit
- Form 8850 (PDF), Pre-Screening
Notice and Certification Request for the Work Opportunity and Welfare-to-Work
Credits
- Tax Topic 750, Employer Tax Information
7.6 Child Care Credit/Other Credits : Advance Child Tax Credit
Why did the IRS send checks to certain taxpayers in the summer of
2003?
On July 25, 2003, the IRS began issuing advance payment checks to about
25 million taxpayers who claimed the Child Tax Credit on their 2002 tax return.
The payment is an advance refund of the expanded Child Tax Credit for the
2003 tax year. This credit increased to $1,000 per eligible child from $600
per child for the 2002 tax year. Taxpayers were able to get an advance payment
of up to $400 per eligible child they claimed on their 2002 return.
I did not get a check or notice telling me that I was going to get
a check. Why not?
The IRS notified all eligible taxpayers before the checks were sent. Taxpayers
did not have to do anything. We were using your 2002 data to automatically
figure whether you were due an advance payment check and if so, how much.
Why did some of my friends get checks and I did not?
There could be several possibilities.
1. You filed after April 15 , with an extension. You will not get any advance
payment that you are entitled to receive until after the IRS process your
2002 return.
2. You did not claim the Child Tax Credit last year. Due to this fact,
you are not eligible for an advance payment, even though you will be able
to clai m the credit on your 2003 return. For example, if your only child
is born this year, you will not get any advance payment, but you may qualify
for the credit when you file your return next year.
3. Your child may now be too old to qualify (over 16). Or the credit's
tax liability and earned income limitations may result in no increase for
you. Or the refund amount may be too small. The government won't send a check
when the calculated advanced payment is less than $10.
What if I moved since filing my 2002 tax return?
If you did not get a check, you can claim up to $1,000 for each eligible
child on your 2003 federal income tax return. Notify the U.S. Post Office
of your address change.
I got the check. Does this mean that I will not be getting a big
refund on my 2003 return?
Assuming that your income and number of qualifying children remain the
same, your 2003 refund should not be smaller than your 2002 refund because
of your advance payment. The law simply gave you this increase rather than
have you wait until you filed your 2003 return in 2004. You just subtract
the amount of your advance payment check from the $1,000 per-child total on
your 2003 return.
Will this advance payment raise my taxes for 2003?
No. It's part of the tax cut the new law gives you for 2003.
I don't remember what the amount was on the check. How can I get
that information?
Visit the IRS website at irs.gov. Click onYour
2003 Advance Child Tax Credit. You will have to provide your
social security number, filing status, and the number of exemptions you claimed
on your 2002 return. Or call (800) 829-1040 and select Your Advance Child
Tax Credit.
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