Most USM students weren’t born with silver spoons in their mouths, and have to work, go into debt, or depend on a spouse to help pay the bills. Here are a few tips on how to make the dollar go further at income tax time. If your parents are helping out, be sure they haven’t overlooked these opportunities. Even if they know about them, they’ll appreciate your concern.
Student Loan Interest
For 2002 a deduction of up to $2,500 can be claimed for interest paid on qualified education loans. A qualified education loan means any debt incurred by the taxpayer solely to pay qualified higher education expenses. Qualified education expenses include tuition and fees, room and board, books and supplies required for enrollment at a university that provides a two-year or four-year program and for which an associate or bachelor’s degree is awarded (an eligible educational institution).
These expenses may be incurred on behalf of the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer. The deduction is phased out for joint filers with modified Adjusted Gross Income between $100,000 and $130,000, and for single filers between $50,000 and $65,000. Students must be enrolled at least half-time in a degree program (undeclared and non-degree students may not qualify). Married taxpayers must file jointly to claim the deduction.
The write-off for student loan interest is an adjustment to income, which means it can be used by filers taking the standard deduction, as well as those who itemize deductions.
Hope Tax Credit
For 1999, a maximum credit of $1,500 is available for qualified tuition and fees (not books or living expenses) paid on behalf of the taxpayer, taxpayer’s spouse, or dependents. The credit allowed is 100 percent of the first $1,000 spent plus 50 percent of the second $1,000 spent. Students must be enrolled at least half-time in a degree-granting program for at least one semester during the year.
The credit is phased out for joint filers with modified Adjusted Gross Income between $80,000 and $100,000, and between $40,000 and $50,000 for single filers and married persons filing separately. See IRS Publication 970 to calculate your credit.
Lifetime Learning Credit
A maximum credit of 20 percent of expenses incurred is allowed for tuition and fees not to exceed $5,000 in one’s lifetime, up to a maximum credit of $1,000 per year. Qualified tuition and fees are those required for enrollment or attendance of the taxpayer, the taxpayer’s spouse, or a dependent of the taxpayer at an eligible post-secondary educational institution. One need not be enrolled in a degree program [e.g., one course per year qualifies], and there is no limit on the number of years for which this credit can be claimed. The same phase-out limits as the Hope Tax Credit apply to the Lifetime Learning Credit.
For each student, a taxpayer may claim only one credit per year between the Hope Tax Credit, Lifetime Learning Credit, and the exclusion for certain distributions from an education IRA.
Child Tax Credit
In tax year 2002, taxpayers may claim a $600 maximum credit for each qualifying child under the age of 17. This credit is separate from the child care tax credit, and will increase gradually to $1,000 over the next ten years. The credit is phased out by $50 for each $1,000 of modified Adjusted Gross Income over $110,000 for joint filers, over $75,000 for single filers, and over $55,000 for married persons filing separately. Single parents, this one will pay for books!
Earned Income Tax Credit
Low-income students supporting one or more children should look carefully at the earned income tax credit, which may pay a refund for 2002 even if no taxes were witheld or due. Filer and child must share the same residence for more than one-half the year, and the child must be, age 18 or under, a full-time student who is under age 24 at the end of the year, or totally disabled.
For one qualifying child, the credit for 2002 is 34 percent of earned income up to a maximum of $7,370 of income. The credit is phased out at a rate of 15.98 percent of earned income over $14,520 for joint filers, or $13,520 for other filers. Joint filers with one child earning more than $30,201, or other filers earning more than $29,201 are not eligible to receive the earned income credit.
For two or more qualifying children, the credit is 40 percent of earned income up to $10,350 of earned income, phased out at a rate of 21.06 percent of earned income over $14,520 for joint filers, and $13,520 for other filers. Joint filers with two or more children earning more than $34,178, or other filers earning more than $33,178 are not eligible to receive this credit.
Joint filing low-income students with no children who earned less than $12,060, or single filers who earned less than $11,060 can also claim an earned income tax credit up to $376, provided one is between the ages of 25-64 at year end, resides in the United States for more than half the year, and cannot be claimed as a dependent on someone else’s tax return. The rate is 7.65 percent of earned income up to $4,910, phased out at 7.65 percent over $7,510 for joint filers, or $6,150 for single filers.
Many students lose out on this refund because they’re unaware the earned income credit exists. A tax return must be filed to obtain a refund. Use Schedule EIC to calculate your refund. It can help pay for books.
New Rates for 2002
Each year the IRS makes an inflation-based adjustment to the figures required to calculate the income tax. Called “tax indexing,” this includes changes in the personal exemption, Standard Deduction, and tax bracket amounts.
For tax year 2002, the amount allowed for each personal exemption is $3,000. This is a $100 increase from the 2001 amount.
A Standard Deduction may be claimed instead of reporting Itemized Deductions on Schedule A. The amount varies with filing status. Each taxpayer is entitled to claim the greater of the Standard Deduction or Itemized Deductions. (Itemized Deductions include: medical expenses over 7.5 percent of Adjusted Gross Income; state income, real estate, and personal property taxes; qualified mortgage interest; charitable contributions; miscellaneous employment or investment income, and related expenses). If you have a lot of Itemized Deductions, they may add up to more than the Standard Deduction shown below.
Filing Status 2002
Head of household 6,900
Married, separate 3,925
Tax rates are found in the brochure that comes with the forms, and are slightly more favorable than last year. See also: http://www.irs.ustreas.gov/individuals/
Maine Property Tax Circuit Breaker
Here’s one you won’t find on your income tax return, and renters qualify for it as well as homeowners. Taxpayers with joint household income of up to $32,000 will be reimbursed for half of the amount of property tax they paid over 4 percent of household income, and 100 percent of the amount over 8 percent of income, up to a maximum refund of $1,000.
Renters are also eligible, because the program figures 18 percent of rent paid is actually property taxes shifted onto them by landlords. So renters, if you earned less than $32,000 in 2002, and 18 percent of the total rent you actually paid in 2002 is more than 4 percent of your household income, you should file for a refund. Get the forms for the Maine Homeowners and Renters Property Tax Relief Program from your municipal finance department or town clerk.
It’s not too early to start thinking about doing your taxes. Remember, the earlier you file, the earlier you get the refund check to help pay your bills!