Several new tax benefits are available to help families meet the cost of postsecondary education. These tax benefits are intended to help students and their parents as well as all working Americans to fulfill a variety of educational objectives.

Taxpayers can claim one of the new tax credits if they are eligible, reducing the expenses of putting themselves or their children through college. These tax credits can directly reduce the amount of federal income tax for returns filed in 1999 or later. The Hope Scholarship Credit is available on a per-student basis for the first two years of postsecondary education, while the Lifetime Learning Credit applies on a tax-return basis and covers a broader time frame and range of educational courses. Education expenses paid for with tax-free grants, scholarships, and employer-education assistance are not eligible for either tax credit. Education expenses paid with loans are eligible for these tax credits.

Hope Scholarship Credit
A tax credit equal to all of the first $1,000 of tuition and fees (less scholarships, grants, and tax-free tuition benefits) and half of the next $1,000 of tuition and fees is available to parents of dependent students or to students who are not claimed as dependents on their parents' return. The maximum credit of $1,500 will increase for inflation after 2001. The Hope credit can be claimed only for two tax years and applies only to the first two years of postsecondary education. Students must be enrolled at least half-time during at least one academic period that begins during a tax year and cannot have had a drug felony conviction in a year that the credit applies. Education expenses paid on or after January 1, 1998, are eligible for the Hope credits.

Lifetime Learning Credit
This credit applies to tuition and fees for undergraduate, graduate, and continuing-education course work. A family can claim on its tax return a credit equal to 20 percent of $5,000 of educational expenses; so the maximum benefit is $1,000 each tax year. Eligible education expenses are offset by scholarships, grants, and other tax-free tuition benefits. Starting in 2003, the amount of eligible education expenses increases to $10,000, resulting in a $2,000 maximum tax credit. Education expenses paid on or after July 1,1998, are eligible for the Lifetime Learning credit.

Who is Eligible for the Education Tax Credits?
The full value of both education tax credits is available to married taxpayers filing jointly with an adjusted gross income (AGI) of $80,000 or less and to single taxpayers with an AGI of $40,000 or less. The tax credits phase out gradually. Once married taxpayers' AGI exceeds $100,000 or single taxpayers' AGI exceeds $50,000, they are not eligible for these credits. The income limits will be adjusted for inflation after 2001. Also, taxpayers cannot use both credits for the same student in a single year nor may they combine these credits with tax-free withdrawals from education IRAs (see next page). Individuals should save their records of tuition and financial aid for tax purposes. Colleges and universities will need to collect Social Security numbers from all students so they can issue information reports to assist families when they file their taxes.