Thursday, January 15, 1998
Students catch a break
TAX-BREAK: Initiative cuts taxes for those who pay for higher
education
By H. Jayne Ahn
Daily Bruin Contributor
Students and their families may qualify for certain federal tax
credits starting this year from the tax bill aimed at funding
education, signed into the law last August.
The Tax Relief Act of 1997 and the Balanced Budget Act of 1997
unburden eligible taxpayers with new tax breaks, including tax
credits for higher education and training.
The act, which will reduce federal taxes by over $90 billion
during the next five years, earmarks approximately $40 billion of
these reductions for college students and their parents. The new
tax incentives for education are part of an attempt to balance the
budget by cutting taxes and holding the line on spending.
The Congressional Quarterly Weekly Report writes that the new
bill provides "the most significant increase in education funding
in more than 30 years" and the $35 billion in tax relief "the
largest investment in higher education since the G.I. bill 50 years
ago."
However, local experts differ. "This is sort of like Band-Aids.
They help," said Samuel Moses, an accountant in Santa Monica. "But
if you have enough of an injury, the Band-Aids are not going to fix
it."
"Many of these credits and IRAs all help, but they are not
enough for many people," Moses said. "If they couldn’t afford
education before, they still can’t afford the education in many
cases."
The tax credits resulting from the bill (entitled the Hope
Scholarship and Lifetime Learning Credits) are nonrefundable tax
credits for payments made for qualified tuition and fees for
post-secondary education.
The Hope Scholarship credit allows taxpayers to claim a maximum
credit of $1,500 for expenses paid on behalf of the taxpayer, the
taxpayer’s spouse, or a dependent for the first two years of
college education.
Third and fourth-year students and graduate students may claim
the Lifetime Learning credit of up to $1,000 for any course of
instruction that enhances their job skills.
The maximum credit rises to $2,000 for tax years beginning in
2003. Individuals will not be eligible for Lifetime Learning tax
credits and Hope Scholarship credits in the same year.
The amount for which taxpayers are eligible for either tax
credit diminishes as their incomes reach between $40,000 and
$50,000. This limitation gears the provisions only towards medium-
to low-income families.
Taxpayers should also keep in mind that their credits benefit
them only to the extent they owe federal income taxes. So if they
do not owe taxes, they will receive no credit.
In addition the cost of room and board or books is not
applicable in the new tax credits.
Another provision tucked into the new tax bill is a credit paid
for interest on student loans. The credit is up to $1,000,
effective for interest paid after December 31, 1997. The maximum
deduction allowed rises to $2,000 beginning in 2003.
Amid all the excitement about the new tax initiatives to help
fund education, some critics are wary about how much the new
provisions, with many limitations on each, will help.
For example, said Moses, the new interest deduction for
educational loans "depends on when you started paying your interest
and how long your interest has been paid for."
"You can write off the interest for only the first five years of
the loan. If you graduated, say, in 1992, and say you started
paying interest in ’93, you only have one year left," to receive a
credit, he points out.
The Hope Scholarship and Lifetime Learning Credit applies to
expenses paid after December 31, 1997 and June 30, 1998,
respectively, for college sessions beginning after those dates.
Unfortunately, that means eligible UCLA students who paid their
winter 1998 fees by the December deadline will not benefit from the
Hope Scholarship credit that takes effect this year.