Tax Relief Act of 1997

This law offers numerous tax benefits for higher education.  Highlights of the benefits are discussed below.  See IRS publication 970 for additional information.

Hope Scholarship Credit

• First two years of postsecondary education only
• Enrolled at least half-time in a degree program for one academic period
• No prior convictions for possessing/distributing a controlled substance
• Benefit is a federal tax credit for calendar year 2007 is $1650 per student-100 % of the first $1,100 paid and 50 % of the next $1,100
• 2007 Income limits-single returns - phased out at $47,000 - 57,000 and married filing joint at $94,000 - 114,000
• Amounts paid for tuition and required fees paid out of own pocket qualify for credit during calendar year
• Person who claims the personal exemption for student may take the credit
• May claim credit in the same year if taken a tax-free distribution from a Coverdell ESA, provided the distribution is not used for the same expenses for which the credit is claimed (Coverdell covers room & board while credit is for tuition and related fees)
• Federal Form 8863  to receive tax credit
• Form 1098-T  from educational institution

Lifetime Learning Credit

• Remaining postsecondary education, including graduate school, continuing education, etc. at an eligible educational institution
• Benefit is a federal tax credit up to $2,000 per family- 20 % of expenses
• 2007 Income limits - single returns - phased out at $47,000 - 57,000 and married filing joint at $94,000 - 114,000
• Amounts paid for tuition and required fees paid out of pocket qualify for credit during calendar year
• Person who claims the personal exemption for student may take the credit
• May claim credit in the same year if taken a tax-free distribution from a Coverdell ESA, provided the distribution is not used for the same expenses for which the credit is claimed(Coverdell covers room & board while credit is for tuition and related fees)
• Federal Form 8863  to receive tax credit
• Form 1098-T  from educational institution

Student Loans

• May deduct interest on federal tax return up to $ 2500
• Loan taken for qualified educational expenses-tuition, books, supplies, room and board, transportation, etc.
• Undergraduate and graduate expenses
• Must have been enrolled at least half-time in a degree program
• 2007 Income limits - single returns - phased out at $55,000 - 70,000 and married filing joint at $110,000 - 140,000
• Person who claims the personal exemption for student may take the deduction
• Federal Tax Form 1040A  or 1040  to claim deduction
• Federal Form 8815

Coverdell Education Savings Accounts (ESA) - Formally IRAs

• Benefit is the interest is not taxed - when distributions are used for qualifying educational expenses (including computers)
• Maximum contribution in 2007 is $2,000 per beneficiary
• May be set up for an beneficiary under the age of 18-exception for special needs beneficiary over age 18
• Amounts used for tuition, books, supplies, room and board if at least a half-time student, payments to state tuition program
• Undergraduate and graduate expenses
• 2007 Income limits-single returns phased out at $95,000 - 110,000 and married filing joint at $190,000 - 220,000

Education Savings Bonds

• Benefit is the interest is not taxed
• Amounts used for tuition, required fees, payments to ESA and state tuition programs
• Undergraduate and graduate expenses
• Applies only to qualified series EE bonds issued after 1989 or series I bonds - owner of bond must be at least 24 years old
• 2007 Income limits- phased out at $65,600 - 80,600 and married filing joint at $98,400 - 128,400
• Form 8815  
• Claim deduction on Form 1040

New Deduction for Higher Education Expenses

• You may be able to deduct qualified tuition and related expenses paid during the year for yourself, spouse, or dependent, even if you do not itemized deductions on Federal Form 1040, Schedule A  
• For 2007, the maximum amount will be $ 4000.
• The deduction is for qualified tuition and related expenses at an eligible educational institution.
• Undergraduate and graduate expenses.
• The expenses must be reduced by tax-free scholarships, educational assistance, etc.
• 2007 Income limits-single returns-$ 65,000 - 80,000 ($2,000 deduction) and married filing joint- $ 130,000 - 160,000 ($4,000 deduction)
• May not take deduction if claim the Hope Scholarship or lifetime learning credit
• Must reduce expenses by interest on savings bonds, expenses you used from tax-free withdrawal from Coverdell ESA, and expenses from QTP
• For 2007 - Form 1040 - Line 34 - Federal Form 8917 to receive deduction

Scholarships and Fellowships

• A scholarship is the amount paid for the benefit of a student at an educational institution to aid in the pursuit of studies.  The student may be either an undergraduate or graduate.
• A fellowship is the amount paid for the benefit of an individual to aid in the pursuit of study or research.
• A scholarship or fellowship is tax free only if a candidate for a degree at an eligible educational institution and the grant is a qualified scholarship or fellowship.
• A qualified scholarship or fellowship are monies used for tuition, required fees, books, etc.
• Monies used for room and board, travel, and incidental expenses are taxable.
• Report taxable scholarships and fellowships on Form 1040A  or Form 1040.
• See IRS Publication 520 for additional information

Student employee social security exemption - requirements for exclusion

• Undergraduate students must be enrolled for 6 credit hours or more per academic semester, and 3 credit hours or more during the summer session.
• Graduate students must be enrolled for 3 credit hours or more per academic semester and 1 or more credit hours during the summer session.
• For additional information, contact the payroll department.

1098-T Information

• The Taxpayer Relief Act of 1997 created two Federal income tax credits for eligible taxpayers paying qualified tuition and related fees-Hope Scholarship and Lifetime Learning tax credits
• MTU is required to report amounts for Boxes 1 or 2, and boxes 3-7 if applicable. - MTU reports amounts billed during the calendar year.
• Your accounts receivable financial information is included for information purposes only.  It is not considered to an IRS document.  It does not represent tax or legal advice from MTU, and is not reported to the IRS.
• You will receive this document by January 31.
• Form 1098-T  may not be sent in the following situations:
• Students enrolled during the year in courses for which no academic credit is offered
• Nonresident alien students, unless requested by the student
• Students whose qualified tuition and related fees are entirely waived or paid directly with scholarships
• Students whose qualified tuition and related fees are covered by a formal billing arrangement between MTU and the student’s employer

Please contact your local tax advisor or the IRS for additional information.

529 Plans (QTP) - Formally QSTP

• QTP is a program set up to either prepay a student’s tuition or contribute to an account established for paying a student’s high education expenses at an eligible educational institution.
• They are established and maintained by educational institutions and/or individual states.
• Qualified higher education expenses include tuition, fees, books, supplies, equipment required, qualified room and board.
• The beneficiary (student) does not have to include in income any earnings distributed from a QTP maintained by a state if the earnings are used for higher education.  
• QTP’s may be transferred tax free to another QTP, and beneficiaries may be changed to other certain family members.
• Undergraduate and graduate expenses
• Michigan Education Savings Program-MESP
• This is Michigan’s Qualified State Tuition Program(QSTP)-529 Plan
• MESP offers three different investment choices through TIAA-CREF
• Funds may be used at any eligible educational institution-private or public, in or out of State of Michigan, trade or graduate school
• Funds may be used for tuition, required fees, books, supplies, and certain room and board costs
• The benefit is that the earnings are not taxed if used for higher education expenses-both Federal (until 2010) and Michigan tax purposes.
• For Michigan tax purposes, the amount contributed may be deducted from the Michigan taxable income on Schedule 1 - limited to $ 5,000 on a single return and $ 10,000 a married filing joint return.
• There is no annual maximum contribution limit, however, there is a lifetime limit per beneficiary of $ 235,000-includes all amounts in MESP and prepaid tuition accounts in Michigan Education Trust Program.
• There is also a matching program.  The State will match $ 1 for each $ 3 contribution (up to $ 200 maximum per beneficiary) if beneficiary is 6 years or younger, resident of Michigan, and resides in household with family income of less than $ 80,000.
• The amounts can be easily transferred to another eligible beneficiary without tax consequences.
• The website address is :  www.misaves.com
• For additional information:  1 (877) 861-MESP

To order forms or publications from the IRS, call 1-800-TAX-FORM  (1-800-829-3676)

For information, call 1-800-829-1040

To check on tax refund, call 1-800-829-4477 ( Tele-tax-have copy of tax return available)

or website: www.irs.gov

To order forms from the State of Michigan, call 1-800-FORM-2-ME (1-800-367-6263)

For information, call 1-800-487-7000

To check on tax refund, call 1-800-827-4000 (Tele-tax-have copy of tax return available)

or website: www.michigan.gov/treasury