TRA '97 provides new tax benefits for families financing higher education costs

Reporting requirements are an IRS twist; be sure you know what you're doing

(Editor's note: Whether you are an IU employee who is also a student, have children, grandchildren or spouses enrolled in college, or you encounter students in your daily work environment -- and we at the 'Home Pages' suspect those categories incorporate a great majority of us -- the following information, provided by IU's Financial Management Services, is of interest. Special thanks to tax accountants Kristina Sparks and Mona Baker.) Photo by Heather Hill Kristina Sparks (left) and Mona Baker, tax accountants at Financial Management Services, may be reached for consultation regarding TRA '97 at E-mail: taxpayer@exchange.ucs.indiana.edu Web info for parents and students: http://taxpayer.fms.indiana.edu/p+s.html Web info for faculty and staff: http://taxpayer.fms.indiana.edu/f+s.html

Last fall, the U.S. Congress passed the Taxpayer Relief Act of 1997. TRA '97 creates several new tax benefits for families who are saving for, or already paying, higher education costs, or are repaying student loans. Specifically, TRA '97 provides the Hope Scholarship Credit, Lifetime Learning Credit and a deduction for student loan interest paid.

Reporting requirements for qualified educational institutions were created in order to aide the Internal Revenue Service and the taxpayer in determining whether the taxpayer is qualified to claim the Hope Scholarship and/or Lifetime Learning Credits.

Indiana University is required to submit Form 1098-T, Tuition Payment Statement, and/or Form 1098-E, Student Loan Interest Statement to the student and to the IRS at the end of each tax year. In order to report this information to the IRS, the university must obtain the Social Security number (SSN) of every student that has paid tuition and related expenses and/or paid more than $600 in student loan interest. To collect the SSN, electronic Form W-9S (Request for Student/Borrower Social Security Number) is now available for completion in INsite (INdiana Student Information Transaction Environment) http://insite.indiana.edu

Forms may also be printed from http://taxpayer.fms.indiana.edu.

On Form 1098-T, IU is required to report whether the student was enrolled at least half time during at least one semester during the tax year, and whether the student was taking graduate level courses.

This reporting includes non-credit workshops and courses. In order for the university to accurately report the non-credit information, all schools, departments and organizations must report tuition paid by students and non-students for non-credit courses, workshops, seminars and conferences.

Information that the university is required to report on Form 1098-E is the amount of student loan interest paid during that tax year (if more than $600).

Hope Scholarship

The Hope Scholarship is a tax credit, not a scholarship. For students in the first two years of college (or other post-secondary training), taxpayers can claim a maximum credit of $1,500 per tax year for each eligible student. The credit can only be claimed in two taxable years but not beyond the year when the student completes the first two years of college. The student must be enrolled at least half time in a program leading to a degree, certificate, or other recognized educational credential for at least one academic period during the calendar year. The credit can only be applied against payments made after Dec. 31, 1997, for academic periods beginning after that date. The amount of the credit is phased out at certain income levels.

Lifetime Learning Credit

Student Loan Interest Deduction

This is an above-the-line deduction (the taxpayer does not need to itemize in order to claim this deduction) for interest paid in the first 60 months of repayment on private or government-backed loans. The amount eligible for the deduction is limited to post-secondary expenses for tuition, fees, books, equipment, room and board. The amount of the deduction is phased out at certain income levels.

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