Definitions for the Hope and Lifetime Learning Credits


Qualified Tuition and Related Expenses
   General Concepts
    UCI Descriptions
    Timing of Payments

Adjustments to Qualified Expenses
   General Concepts
    UCI Descriptions
    Timing of Disbursements

Refunds
Prior Year Information
    Adjustments Made for a Prior Year to Qualified Tuition and Related Expenses
    Adjustments Made for a Prior Year to Scholarships and Grants


Qualified Tuition and Related Expenses

General Concepts

For tax year 2002, UCI used the taxpayer guide IRS Publication 970:  Tax Benefits for Education [download] to determine which fees may be classified as "qualified tuition and related expenses" for the purpose of generating "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) forms.

For the Hope Credit, "Qualified Tuition and Related Expenses" are defined as follows:

"In general, qualified tuition and related expenses are tuition and fees required for enrollment or attendance at an eligible educational institution." 

For the Lifetime Learning Credit, "Qualified Tuition and Related Expenses" are defined as follows:

"In general, qualified tuition and related expenses are tuition and fees required for enrollment in a course at an eligible educational institution." 

"Related expenses" are defined as follows:

"Student-activity fees and fees for course-related books, supplies, and equipment are included in qualified tuition and related expenses only if the fees must be paid to the institution as a condition of enrollment or attendance." 

Publication 970 also describes expenses that cannot be classified as "qualified education expenses."  For either the Hope or the Lifetime Learning Credit, the section titled "Expenses That Do Not Qualify" states that:

"Qualified tuition and related expenses do not include the cost of:
  • Insurance,
  • Medical expenses (including student health fees),
  • Room and board,
  • Transportation, or
  • Similar personal, living, or family expenses.
This is true even if the fee must be paid to the institution as a condition of enrollment or attendance."

UCI Descriptions

"Qualified tuition and related expenses" are listed and summed under "Payments Received for Tuition and Related Expenses" in Part 1 of the "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form, supplied only with each student copy of the 1098-T form for tax year 2002.  "Regular Session Fees," "Course Materials Fees," "Summer Session Fees," and/or "University Extension Fees" may be displayed, depending on the student's enrollment.  All amounts on the printed form are totals paid for the tax year; details are available online.

To assist students with interpreting "Payments Received for Tuition and Related Expenses" entries, the descriptions of several UCI campus fees are listed below, with an indication of whether or not each is considered a "qualified tuition and related expense" (shaded items are qualified portions of quarterly registration fees):

Description

Qualified

Add-Drop Fee

No

Associated Students Fees

Yes

Bren Events Center Fee

Yes

Campus Spirit Fee

Yes

Class Verification Fee

No

Diploma Fee

No

Educational Fee

Yes

EMBA/FEMBA/HCEMBA Materials Fees

Yes

Graduate Student Health Insurance Fee

No

Lab Fees

Yes

Late Enrollment Fee

No

Late Registration Fee

No

Medical Student Disability Insurance Fee

No

Non-Resident Fee

Yes

Professional Fees

Yes

Recreational Center Fee

Yes

Registration Fee

Yes

Transcript Fee

No

UCI Student Center Fee

Yes

Undergraduate Health Insurance Fee

No

 

Note to EMBA, FEMBA, and HCEMBA students:

You may notice that the amounts of "Payments Received for Tuition and Related Expenses" shown in Part 1 on your "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) forms are less than the registration fees you paid.   Certain portions of your quarterly registration fees--representing catering, parking, and residential costs--have been excluded from your "qualified tuition and related expenses," following the guidelines from IRS Publication 970:  Tax Benefits for Education [download], given above.

The Graduate School of Management Financial Aid Office at (949) 824-5728 has more information about the excluded portions specific to your class or program.  Since individual circumstances may vary, you may also wish to consult your tax advisor for assistance in interpreting Publication 970. 

Timing of Payments

According to IRS Publication 970:  Tax Benefits for Education [download], education tax credits for tax year 2002 are based on "qualified tuition and related expenses" paid during 2002, for academic periods beginning in 2002 or in the first 3 months of 2003.  Under "What Expenses Qualify?" for either the Hope or the Lifetime Learning Credit, the IRS advises:

"Generally, the credit is allowed for qualified tuition and related expenses paid in 2002 for an academic period beginning in 2002 or in the first 3 months of 2003."

"Academic period.  An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution."

UCI used these rules for tax year 2002 by including Winter 2003 registration fee payments applied before 01/01/2003 on "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) forms.   Later payments will be classified as tax year 2003 transactions.

As with every UC campus, registration fees at UCI are assessed term-by-term, and are based on a student's enrollment plans.  As a result, UCI does not accept pre-payment of fees beyond those assessed for the upcoming academic term.  Therefore, payments for Spring 2003 were not accepted in tax year 2002, and could not be included in this year's reporting. 


Adjustments to Qualified Expenses

General Concepts

UCI also used IRS Publication 970:  Tax Benefits for Education [download] to determine which types of financial aid and graduate support may be considered "Adjustments to Qualified Expenses."  For either the Hope or the Lifetime Learning Credit, the section titled "Adjustments to Qualified Expenses," this publication makes taxpayers aware that:

"If you pay higher education expenses with certain tax-free funds, you cannot claim a credit for those amounts.  You must reduce the qualified expenses by the amount of any tax-free educational assistance you received.

Tax-free educational assistance could include:

  • Scholarships,
  • Pell grants,
  • Employer-provided educational assistance,
  • Veterans' educational assistance, and
  • Any other nontaxable payments (other than gifts, bequests, or inheritances) received for educational expenses.

Do not reduce the qualified expenses by amounts paid with the student's:

  • Earnings,
  • Loans,
  • Gifts,
  • Inheritances, and
  • Personal savings.

Also, do not reduce the qualified expenses by any scholarship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualified tuition and related expenses."

UCI Descriptions

UCI considers many forms of educational assistance as potential "Adjustments to Qualified Expenses" as described above.  No attempt is made to categorize financial aid or graduate support received by a student as either tax-free or taxable funds that may or may not reduce a student's "Qualified Tuition and Related Expenses."  Such determinations are the responsibility of the taxpayer when completing his/her return.

Potential "Adjustments to Qualified Expenses"  are listed and summed as "Scholarships or Grants" in Part 2 of the "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form supplied only with each student copy of the 1098-T form for tax year 2002.  All amounts on the printed form are totals disbursed during the tax year; details are available online.  Various types of financial assistance may be displayed, depending on the student's award package:  

To assist students with interpreting this supplementary financial data, descriptions of several types of financial aid and graduate support offered at UCI are listed below, with an indication of whether or not each is listed under "Scholarships and Grants" in Part 2 of the "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form:

Description

Reported

Agency Scholarship

Yes

Arts Bridge Scholarship

Yes

Cal Grant A

Yes

Cal Grant B

Yes

Cal Grant T

Yes

Campus Merit Scholarships

Yes

Departmental Fellowship

Yes

Federal Pell Grant

Yes

Federal Direct Loan

No

Federal Direct Unsubsidized Loan

No

Federal Direct PLUS Loan

No

Federal Perkins Loan

No

Federal SEOG

Yes

Federal Work-study

No

Fee/Insurance Remission (Teaching Assistantship)

Yes

Grant-in-Aid

Yes

Graduate Student Researcher (GSR) Tuition Remission

Yes

GSM Faculty Fellowship

Yes

Hawk Loan

No

In Absentia Fee Waiver

Yes

In-Candidacy Fee Offset Grant

Yes

ISP Tuition Adjustment

Yes

Joint MD/PhD Stipend

Yes

Joint MD/PhD Waiver

Yes

Professional Fee Grant

Yes

Regents' Fellowship

Yes

Regents' Scholarship

Yes

SDS Med Scholarship

Yes

Student/Employee Waiver

Yes

Third-Party Billing

Yes

University Loan

No

University Scholarship

Yes

UPHSS Waiver

Yes

UROP Stipend

Yes

Veteran's Waiver

Yes

Visitor/Other Campus Waiver

Yes

Timing of Disbursements

Classifying "Adjustments to Qualified Expenses" disbursed for Winter quarters is complicated by the fact that these quarters "cross" tax years.  Registration fee payments are due in December of one tax year; then instruction begins in January of the following tax year.  As a result, a student may apply a portion of his/her financial aid and/or graduate support in one tax year, and then receive a disbursement of the remainder in the following tax year.

To reduce confusion, UCI places "Adjustments to Qualified Expenses" that was applied to Winter registration fees in the tax year that the funds were used.  For example, a student who paid his/her Winter 2003 registration fees with a Pell Grant on 12/11/2002 would find those funds reflected on his/her "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form for tax year 2002.  Conversely, a student who applied his/her GSR Tuition Remission to Winter 2003 registration fees on 01/07/2003 would see the "Tuition/Fee Remissions" entry on his/her 2003 tax materials.

Categorizing "Adjustments to Qualified Expenses" issued as checks is more difficult, because the timing of disbursements differs for financial aid versus graduate support.  Checks for Winter financial aid cannot be disbursed before the quarter begins in January.  As a result, Winter 2002 financial aid checks are considered as tax year 2002 "Adjustments to Qualified Expenses" whereas Winter 2003 financial aid checks will be counted for tax year 2003.

In contrast, checks for Winter graduate support may be disbursed before or after the quarter begins.  Therefore, a student may find that some of his/her Winter checks fall in one tax year, and the remainder in the subsequent year.  For example, a student who received Winter 2003 stipend checks in December 2002, January 2003, and February 2003 would note the first check on his/her tax year 2002 "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form, and the other two on his/her 2003 tax materials.


Refunds

The IRS does not allow a double benefit, so you can't use "qualified tuition and related expenses" to claim an education tax credit and receive a refund for those same expenses.  For either the Hope or the Lifetime Learning Credit, the section titled "Adjustments to Qualified Expenses," advises taxpayers that:


"Qualified tuition and related expenses do not include expenses for which you receive a refund.  If you paid expenses in 2002, and you received a refund of those expenses before you file your tax return for 2002, simply reduce the amount of the expenses paid by the amount of the refund received.  If you receive the refund after you file your 2002 tax return, see When Must the Credit Be Repaid (Recaptured), later"

The University may refund a portion of your registration fee payment after a change in enrollment status (dropping from full-time to part-time, changing from non-resident to resident, or withdrawing).  A refund issued in the same tax year as the registration fees were paid simply is subtracted from the "Payments Received from Tuition and Related Expenses" listed and summed in Part 1 of your "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form.  A refund issued in a different tax year from the one in which registration fees were paid may appear under "Adjustments Made for a Prior Year to Qualified Tuition and Related Expenses" in Part 3 of your "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form (see below).


Prior Year Information

The IRS' rule against double benefit even applies to prior years.  Beginning with tax year 1999, taxpayers have been advised to repay any portion of a previous tax year's education tax credit corresponding to educational expenses reimbursed during the current tax year.  This procedure is known as "recapturing " a tax credit.

The tax year 2002 edition of IRS Publication 970:  Tax Benefits for Education [download] gives instructions regarding "When Must the Credit be Repaid (Recaptured)?" for either a Hope or Lifetime Learning tax credit:

"If, after you file your 2002 tax return, you receive tax-free educational assistance for, or a refund of, an expense you used to figure a Hope [or Lifetime Learning] credit on that return, you may have to repay all or part of the credit.  You must refigure your Hope [or Lifetime Learning] credit for 2002 as if the assistance or refund was received in 2002.  Subtract the amount of the refigured credit from the amount of the credit you claimed.  The result is the amount you must repay.  You add the repayment (recapture) to your tax liability for the year you receive the assistance or refund (see the instructions for your tax return for that year).  Your original 2002 tax return does not change."

To aid eligible taxpayers in computing any "recapture amount" that may be appropriate, the "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form provided only with each student copy of the 1098-T includes a section for "Tax Year 2002 Adjustments to Prior Tax Year Amounts" (when applicable).  This section is composed of two parts to differentiate "Adjustments Made for a Prior Year to Qualified Tuition and Related Expenses" (refunds) from "Adjustments Made for a Prior Year to Scholarships or Grants" (educational assistance).

Adjustments Made for a Prior Year to Qualified Tuition and Related Expenses

Full or partial refunds issued in the current tax year for registration fees paid in a prior tax year are listed and summed under "Adjustments Made for a Prior Year to Qualified Tuition and Related Expenses" in Part 3 of the "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form.  At UCI, Winter 2002 registration fees were payable in 2001, for classes beginning in 2002, so refund transactions crossing tax years are to be expected.

Any amount shown in parentheses ( ) in Part 3 represents a refund credit in 2002, for registration fees paid in a prior year.  Such a credit typically indicates that a student dropped from full-time to part-time, changed from non-resident to resident, or withdrew from Winter quarter 2002 (although other circumstances are possible). 

Adjustments Made for a Prior Year to Scholarships and Grants

Educational assistance received in 2002 for expenses paid in a prior year is listed and summed under "Adjustments Made for a Prior year to Scholarships and Grants" in Part 4 of the of the "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form.  Since the 2001-2002 financial aid award year spanned tax years, then financial aid or graduate support transactions crossing tax years are possible.

Any amount not shown in parentheses in Part 4 represents educational assistance received during 2002 for a quarter that began in a prior year.  For tax year 2002, such an amount typically indicates that a student received Fall 2001 quarter financial aid or graduate support later in the award year, perhaps during Winter 2002 or Spring 2002. 

Note to Financial Aid Recipients:

Winter 2002 check disbursements of scholarships, grants, and other forms of aid that may represent "Adjustments to Qualified Expenses" were classified as tax year 2002 transactions, even though registration fees for that quarter were payable in the previous tax year.  Since Winter 2002 quarter did not begin until January 2002, checks for that quarter were not considered to be tax year 2002 "Adjustments Made for a Prior Year to Scholarships and Grants."  Accordingly, Winter 2002 disbursements are listed and summed under "Scholarships and Grants" in Part 2 of the "Information for Determining Federal Tax Benefits for Higher Education Expenses" (financial supplement) form.

Winter 2002 fee payments transacted in tax year 2001 with scholarships, grants, and other forms of aid that may represent "Adjustments to Qualified Expenses"  were displayed on that year's tax materials provided to students in January 2002.

Since individual circumstances may vary, students and their families may wish to consult a tax advisor for assistance in interpreting Publication 970 [download].


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.


Further information is available from:

U.S. Department of Education

U.S. Department of Education
(800) USA-LEARN or TTY (800) 437-0833
President Bush's Tax Programs Great for America's Families...

Internal Revenue Service

Internal Revenue Service
(800) 829-1040 or TTY (800) 829-4059

Publication 970:  Tax Benefits for Higher Education
Tax Topic 456:  Student Loan Interest Deduction
Tax Topic 605:  Education Credits
FAQ:  Hope & Lifetime Learning Educational Credits
FAQ:  Student Loan Interest Deduction
Tax Trail:  Education Tax Credits
Tax Trail:  Student Loan Interest
Tax Trail:  Deduction for Higher Education Expense

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