Hope Scholarship Tax Credit

The Hope Scholarship is actually a tax credit, not a scholarship. Tax credits are subtracted directly from the tax a family owes, rather that reducing taxable income like a tax deduction. A family must file a tax return and owe taxes to take advantage of it. The Hope credit is not refundable for families who do not pay taxes or who owe less in taxes than the maximum amount of the Hope tax credit for which the family is eligible.

A family may claim a tax credit of up to $1,500 per tax year for each eligible dependent. This can be done for up to two tax years. A family may claim up to 100% of the first $1,000 of eligible expenses and 50% of the next $1,000 for a maximum credit of $1,500.

The actual amount of the credit depends on the family’s income, the amount of qualified tuition and fees paid, and the amount of certain scholarships and allowances subtracted from tuition. The total maximum credit also is based on the number of eligible dependents, rather than a maximum dollar amount for the family.

Who qualifies for the Hope Scholarship tax credit?

The taxpayer

An eligible taxpayer must file a tax return and owe taxes to claim the credit. The taxpayer must also claim the eligible student as a dependent, unless the credit is for the taxpayer or the taxpayer’s spouse. The taxpayer is eligible for the maximum benefit with an Adjusted Gross Income (AGI) of up to $40,000 for a single taxpayer (or $80,000 for married taxpayers). The credit amount is phased-out between $40,000 and $50,000 for single taxpayers (or $80,000 and $100,000 for married taxpayers).

The student

An eligible student must be enrolled at least half-time in an eligible program leading to a degree or certificate at an eligible school during the calendar year and must not have completed the first two years of such undergraduate study. The student may claim the credit if the student is not claimed as a dependent by another taxpayer. This means the eligible student may also be the eligible taxpayer. In addition, the student may not have been convicted of a Federal or State felony drug offense before the end of the tax year in which the academic period occurs.

When is the credit available?

The taxpayer may claim the Hope credit for qualified expenses paid January 1, 1998 and after for education furnished in academic periods beginning on or after this date.