What is the Hope Scholarship Tax Credit?
In general, the Hope Scholarship provides a federal income tax credit based on the first $4,000 in postsecondary education expenses paid by the taxpayer during the tax year. This could be a very useful student tax credit depending on what stage the taxpayer is currently at in their education.The American opportunity credit modifies the Hope Scholarship credit for any tax years beginning in 2009 through 2017. The maximum amount of the credit is $2,500 and 40% of the Hope credit is refundable (up to $1,000).
Information about the Hope Scholarship Credit
For tax years beginning after December 31, 2017, the Hope scholarship credit amount per eligible student is equal to 100 percent of the first $1,000 of qualified tuition expenses and 50 percent of the second $1,000 of qualified tuition paid during the year. In order to claim this education tax credit, several eligibility requirements must be met first.
An eligible student for the Hope Tax credit is any individual who:
- has not elected to claim the Hope credit in any two earlier years;
- has not completed the first two years of post-secondary education before the beginning of the current tax year;
- is enrolled at least half-time in a program that leads to a degree, certificate, or other recognized educational credentials; and
- has not been convicted of any Federal or State felony class drug offense for possession or distribution.
A student must meet all of the requirements in order to claim the federal tax credit also known as the Hope scholarship.
You may claim the Hope Scholarship credit if:
- You pay qualified tuition and related expenses (defined below) for the first 4 years of postsecondary education.
- The qualified expenses are for an eligible student (defined below).
- You show the name and taxpayer identification number of the eligible student on the return.
- You show the name and address of the qualifying educational institution and in most cases show the federal employer identification number of the institution.
- Your modified adjusted gross income is below a certain dollar limitation.
- You are not listed as a dependent in the exemption section of another person’s tax return (such as your parents’).
- If you are married, your filing status is married filing jointly.
- You do not claim the lifetime learning credit for the same student in the same year.
- If you (or your spouse) are a nonresident alien for any part of the tax year, the nonresident alien elects to be treated as a resident alien for tax purposes. For additional information, refer to Publication 519, U.S. Tax Guide for Aliens.
In general, qualified tuition and related expenses means tuition, fees and course materials required for the enrollment or attendance of you, your spouse or your dependent with respect to whom you are allowed a deduction, at an eligible educational institution.
How much of Hope Scholarship Credit is Refundable?
One other good aspect of the Hope Scholarship is that the tax credit is partially refundable. If the taxpayer does not have sufficient tax liability to fully offset the tax credit, up to 40% of the amount of the tax credit may be refunded to the taxpayer. For example, if the taxpayer has $4,000 in education expenses (enough for a $2,500 tax credit) but only $1,500 in tax liability, the taxpayer may obtain the remaining $1,000 tax credit as a refund.