The Hope Credit

What is the Hope Credit?
Who may qualify for the Hope Credit?
Who may claim the Hope Credit?
What payments may qualify for the Hope Credit?
How does my 1098-T relate to the Hope Credit?
How may I claim the Hope Credit?

What is the Hope Credit?

It is a federal income tax credit that:

• reduces the amount of tax owed by up to $1,500 per eligible student for "qualified tuition and related expenses" paid during the tax year
• is equivalent to 100% of the first $1,000 of out-of-pocket payments for "qualified tuition and related expenses" and 50% of the second $1,000, for a maximum of $1,500;
• is nonrefundable, meaning that it can reduce your tax to zero, but if the credit is more than you owe, the overage will not be refunded to you;
• may be reduced based on your modified adjusted gross income (MAGI).
• See "What is the tax benefit of the Hope credit" in Chapter 2 of Publication 970: Tax Benefits for Education [download] for more information.

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Who may qualify for the Hope Credit?

Students who:

• did not have expenses that were used to figure a Hope credit in any 2 earlier years;
• have not yet completed their second year in college as of the start of the tax year;
• are enrolled at least half-time during at least one academic period in the tax year;
• are enrolled in a course of study leading to a degree, certificate, or other recognized educational credential; and
• don't have a felony drug conviction for possessing or distributing a controlled substance as of the end of the tax year.
• A Hope Credit is available to each qualifying student, even if there is more than one in the taxpayer's family during the same tax year.
• See "Who is an Eligible Student" in Chapter 2 of Publication 970: Tax Benefits for Education [download] for more information.

If you enrolled and paid registration fees for at least one quarter during the tax year, then UCI probably issued a 1098-T (Tuition Payments Statement) to you.  Receiving at 1098-T does not necessarily make you eligible for the Hope Credit.  However, information on the form will help you and the IRS to determine if you qualify for the Hope Credit, or another tax benefit for education. See "Differences between the Hope and lifetime learning credits" in Chapter 2 of Publication 970: Tax Benefits for Education [download] for more information.

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Who may claim the Hope Credit?

Taxpayers who:

• paid "qualified tuition and related expenses" during the tax year;
• are students not claimed as dependents on anyone else's tax return, or are non-students entitled to claim an eligible student as a tax dependent;
• are not married filing separately;
• earned enough to owe some tax;
• have a modified adjusted gross income (MAGI) for tax year 2004 less than $52,000 for single taxpayers, or $105,000 for married taxpayers, to be eligible for the maximum benefit (the credit amount is phased out between $42,000 and $52,000 for single taxpayers, or $85,000 and $105,000 for married taxpayers);
• were not nonresident aliens for tax purposes during any part of the tax year;
• haven't already claimed the Lifetime Learning Credit or Tuition and Fees Deduction for the same student in the tax year.
• See "Who Can Claim the Credit" and "Who Cannot Claim the Credit" in Chapter 2 of Publication 970: Tax Benefits for Education [download] for more information.

If UCI enrollment records indicate you were an international student without a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) on file at any time during the tax year, then you are assumed to be a "nonresident alien," and UCI will not routinely issue a 1098-T (Tuition Payments Statement) for you.  If needed, you may request a 1098-T for the current tax year at tra@uci.edu.    If a 1098-T subsequently is issued to you, the information on it also will be provided to the IRS.

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What payments may qualify for the Hope Credit?

Payments that:

• are applied to "qualified tuition and related expenses" paid on behalf of yourself, your spouse, or eligible student who is your dependent;
• are for academic periods beginning in the tax year or in the first three months of the following year;
• are made out-of-pocket, or using student loan funds;
• include amounts for student-activity fees and expenses for course-related books, supplies, and equipment only if these fees and expenses must be paid to the school as a condition of enrollment or attendance;
• do not include amounts for insurance, medical expenses (including student health fees), room and board, transportation, or similar personal expenses;
• are not refunded, or reimbursed with a tax-free scholarship, grant, or employer-provided educational assistance.
• See "What Expenses Qualify"and "Expenses That Do Not Qualify" in Chapter 2 of Publication 970: Tax Benefits for Education [download] for more information.

Payments applied to UCI registration and/or lab fees during the period of January 1, 2004 through December 31, 2004 may qualify for the Hope Credit for tax year 2004.  These payments may apply to the Winter 2004, Spring 2004, Summer 2004, Summer Session 2004, Fall 2004, or Winter 2005 quarters.

"Qualified tuition and related expenses" include fees for student associations and facilities, but do not include fees for health and/or disability insurance.  Lab fees are considered "qualified tuition and related expenses" only if they are required of all students as a condition of enrollment or attendance in the course.

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How does my 1098-T relate to the Hope Credit?

Your 1098-T from UCI for tax year 2004 provides the following information required by the IRS: 

• Box 1 shows the total payments received for "qualified tuition and related expenses," less any associated refunds;
• Box 3 shows any refunds during 2004 for payments of "qualified tuition and related expenses" reported on a 1098-T for a prior year;
• Box 4 shows the total of all "scholarships or grants" that may reduce the amount of payments of "qualified tuition and related expenses";
• Box 5 shows any reduction during the tax year of "scholarships or grants" reported on a 1098-T for a prior year;
• Box 6 has an indication of whether or not the amount in Box 1 included any payments of "qualified tuition and related expenses" for a quarter beginning in January 2005 through March 2005;
• Box 8 has an indication of whether or not you were enrolled at least half-time during at least one academic period in the tax year;
• Box 9 has an indication of whether or not you were enrolled as a graduate student during any academic period in the tax year.
• See "Form 1098-T" in Chapter 2 of Publication 970: Tax Benefits for Education [download] for more information.

Schools have the option to report either "payments received" in Box 1, or "amounts billed" in Box 2.  Since the Hope Credit is based payments, UCI has chosen to report amounts in Box 1 as a service to our students.  This means that Box 2 will be blank on all 1098-T forms issued by UCI.  In addition, UCI does not use Box 7 ("Reimbursements or refunds of qualified tuition and related expenses from an insurance contract") because this institution is not an insurer.  You may find that other boxes on your 1098-T are blank, depending on your personal situation.

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How may I claim the Hope Credit?

The IRS instructs taxpayers to:

• complete Parts I and III of Form 8863: Education Credits to figure the amount of credit;
• enter the amount on Form 1040, line 49 or on Form 1040A, line 31;
• submit Form 8863 with your completed return.
• See "Illustrated Example" in Chapter 2 of Publication 970:  Tax Benefits for Education [download] for more information.

You are not required to receive a 1098-T to figure and claim a Hope Credit.  Your personal financial records serve as the official supporting documentation for your federal income tax return.  Nevertheless, UCI is required to provide your 1098-T information to the IRS, even if you decide not to claim the Hope Credit.

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The information provided in this web page is NOT tax advice.  It is offered only as general information for UCI students and their families.  Please consult a qualified tax expert for advice on computing, claiming, or determining qualification for any tax benefit mentioned in this web site.

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