My-Linh Damon is one very happy sophomore seeing that she recently became $1,500 richer. She will return home to Vietnam over spring break with the unexpected funds.
Damon received the large sum of money from the Lifetime Learning Tax Credit.
“I told my mom and my sister that I wanted to come home and we all worried about how much money I would have for the trip, and suddenly there is all this money and now I’m going. It feels great,” said Damon.
The Hope and Lifetime Learning Credits are available through the Internal Revenue Service to students and parents who support their children as they pursue a higher education.
At first Damon was skeptical about the idea of money simply being refunded to her for being a student. Last year when she received a letter from the Student Billing Office explaining her eligibility she thought it was a scam.
“I threw it away when I first received it. I didn’t even read it,” she said.
Damon is not alone in misunderstanding the tax credits. Many students and parents are unaware that the credits even exist.
“The majority of students don’t know what’s going on, they’re not on top of it,” said Warren H. Cunningham, CPA.
The credits can be a big deal for those who are eligible for up to $2,000 on their returns.
Cunningham, of Cunningham and Harmon in Portland, estimates that about 60 percent of his clients, mostly parents, know the credits exist, but don’t necessarily understand how they work.
USM has a high percentage of non-traditional students who are eligible for the tax break because they pay their own tuition.
Both credits are based on the amount of money a student pays for tuition and related expenses. According to the IRS, tax credits reduce the amount of income tax a student has to pay. In comparison to a deduction, which reduces the amount of income subject to tax, the credit directly reduces the tax itself.
The Hope Credit is available to students for the first two years of their post-secondary education. The maximum amount of the credit is $1,500 per year. The student must be enrolled at least half-time and have no felony drug convictions to be eligible. The amount of the credit is the sum of 100 percent of the first $1,000 of qualified tuition paid, followed by 50 percent of the next $1,000 of qualified tuition paid by each student. That means the student had to have spent at least $2,000 on tuition is one year.
The Lifetime Learning Credit is available to students for each year that they pursue a post-secondary education. However, it can not be used during the same year as the Hope Credit for the same student. Eligible students need to be taking at least one course. This credit is figured by taking 20 percent of the first $5,000 of qualified tuition paid by students.
Both of the credits can be reduced if a student pays for his education with tax-free funds such as scholarships or Pell Grants. Student loans do not affect the amount of the credit.
For students who were unaware of these tax credits and have already filed, it is not too late as they can file for an amended return. Those enrolled in their first two years of college in 1998 or later are still eligible for credit.
This is how Damon got her money. She filed for the Lifetime Learning Credit for this year and an amended return for her freshman year.
The billing office mailed out forms last month to all USM students with information regarding the credits. The forms provide students with status information needed to file for the returns.
Once students have received the 1098T forms from the University they can apply for the credits. A special form, Form 8863, is used in filing for education. According to Nancy Lord, a taxpayer service specialist with the IRS, students also need a copy of a tuition bill. Students should always maintain documentation, said Lord, keeping old tuition bills and tax returns.
Students can find more information on tax credits on the Internet at the USM Web site and at www.irs.gov. Or they can make an appointment for free tax help with volunteers sponsored by the IRS. They meet at Payson Smith Hall in room 43 and in the Science Building in room 162. Students can call 774-8576 to make appointments, or they can go to the IRS walk-in clinic at 220 Maine Mall Road, South Portland, located in Mall Side Plaza.
Staff writer Sherry Whittemore can be contacted at: [email protected]