Overview:The Hope Scholarship provides up to $1,800 as a tax credit in a student’s first two years of college. This amount is doubled to $3,300 for students living in a Midwestern Disaster Area.
Tax credits are more favorable than tax deductions, since the amount received represents a direct credit against taxes owed.
Eligible Expenses for Hope Scholarship:
- Tuition (not room and board)
- Books, fees, and equipment, if required by the school
Rules for Hope Scholarship:
- Must be in first two years of college.
- Must be at least half-time status.
- Must not have a felony drug conviction.
- Cannot be used on tuition that was with paid with a grant, scholarship, or employer funds.
Hope Scholarship Formula:The credit is easy to calculate. Your taxes owed will be reduced by 100% of the first $1,200 in qualified tuition and expenses, and 50% of the next $1,200. The total credit possible is $1,800.
Recipient of Credit:The Hope Credit can be claimed by whoever claims the student as a dependent on their tax return, as long as their status is not "Married Filing Separately." If the student is not included on a parent’s tax return as a dependent, then the student can claim the credit.
Income Phase-Outs for Hope Scholarship:The Hope Credit is reduced (or “phased-out”) for taxpayers with certain levels of Modified Adjusted Gross Income (MAGI).
For taxpayers claiming a Single, Head of Household, or Widow(er) status:
- $50,000 (MAGI) or less– The full credit is permitted.
- $50,001 - $59,999 (MAGI) – A partial credit is permitted.
- $60,000 (MAGI) or more– No credit is permitted.
For taxpayers claiming a Married Filing Jointly status:
- $100,000 (MAGI) or less– The full credit is permitted.
- $100,001 - $119,999 (MAGI) – A partial credit is permitted.
- $120,000 or more – No credit is allowed.
Coordination with Other Tax Benefits:The Hope Credit can be used in the same year as other tax benefits (with the exception of the Tuition and Fees Deduction), as long as it is not used on the same expenses.
For example: You cannot take a $2,200 withdrawal tax-free from a Coverdell ESA and also claim the Hope Scholarship Credit on that same amount.
However, you could pay the first $2,200 in tuition from another source and claim the credit, then take additional funds from a Coverdell ESA and avoid taxation on that additional amount.