Publication 970: Tax Benefits for Education; Publication 970 Introductory Material

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Table of Contents

Important Changes for 2003

Hope and lifetime learning credits. If you are married and filing a joint return, the amount of your Hope or lifetime learning credit for 2003 is gradually reduced (phased out) if your modified adjusted gross income (MAGI) is between $83,000 and $103,000. You cannot claim a credit if your MAGI is $103,000 or more. This is an increase from the 2002 limits of $82,000 and $102,000. There was no change in the limits for any other filing status. For more information, see chapters 2 and 3.

Lifetime learning credit. Beginning in 2003, the amount of qualified education expenses you can take into account in figuring your lifetime learning credit increases from $5,000 to $10,000. The credit will equal 20% of these qualified expenses, with the maximum credit being $2,000. See chapter 3 for more information.

Education savings bond program. . For 2003, the amount of your interest exclusion will be phased out (gradually reduced) if your filing status is married filing jointly or qualifying widow(er) and your modified adjusted gross income (MAGI) is between 87,750 and $117,750. You cannot take the deduction if your MAGI is $117,750 or more. For 2002, the limits that applied to you were $86,400 and $116,400. For all other filing statuses, your interest exclusion is phased out if your MAGI is between $58,500 and $73,500. You cannot take the deduction if your MAGI is $73,500 or more. For 2002, the limits that applied to you were $57,600 and $72,600. For more information, see chapter 10.

Business deduction for work-related education. Beginning in 2003:

If you drive your car to and from school and qualify to deduct transportation expenses, the amount you can deduct in 2003 is 36 cents per mile, down from 36½ per mile in 2002. See chapter 12 for more information.
If your adjusted gross income for 2003 is more than $139,500 ($69,750 if you are married filing separately), your itemized deductions may be limited. See chapter 12 and the instructions for line 28 of Schedule A (Form 1040).

Important Changes for 2004

Tuition and fees deduction. Beginning in 2004, the amount of qualified education expenses you can take into account in figuring your tuition and fees deduction increases from $3,000 to $4,000 if your modified adjusted gross income (MAGI) is not more than $65,000 ($130,000 if you are married filing jointly). If your MAGI is larger than $65,000 ($130,000), but is not more than $80,000 ($160,000 if you are married filing jointly), your maximum tuition and fees deduction will be $2,000. No tuition and fees deduction will be allowed if your MAGI is larger than $80,000 ($160,000). The tuition and fees deduction is explained in chapter 6.

Qualified tuition program (QTP). Beginning in 2004, a distribution from a QTP established and maintained by an eligible educational institution (generally private colleges and universities) can be excluded from income if the amount distributed is used to pay qualified education expenses. Qualified tuition programs are discussed in chapter 8.

Important Reminders

Estimated tax. If you have taxable income from any of your education benefits and the payer does not withhold enough income tax, you may need to make estimated tax payments. For more information, see Publication 505, Tax Withholding and Estimated Tax.

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Introduction

This publication explains tax benefits that may be available to you if you are saving for or paying education costs for yourself or, in many cases, another student who is a member of your immediate family. Most benefits apply only to higher education.

Beginning this year, you will find information on all benefits for education in this one publication. Added to this year's publication is information on scholarships, fellowships, and other educational assistance, as well as information on taking a business deduction for work-related education.

Publication 508, Tax Benefits for Work-Related Education, and Publication 520, Scholarships and Fellowships, will no longer be printed.

What is in this publication.

Chapter 1 explains the taxability of various types of educational assistance, including scholarships, fellowships, and tuition reductions.

Two tax credits for which you may be eligible are explained in chapters 2 and 3. These benefits, which reduce the amount of your income tax, are:

The Hope credit, and
The lifetime learning credit.

Nine other types of benefits are explained in chapters 4 through 12. With these benefits, you may be able to:

Deduct student loan interest,
Receive tax-free treatment of a canceled student loan,
Deduct tuition and fees for education,
Establish and contribute to a Coverdell education savings account (ESA), which features tax-free earnings,
Participate in a qualified tuition program (QTP),
Take early distributions from any type of individual retirement arrangement (IRA) for education costs without paying the 10% additional tax on early distributions,
Cash in savings bonds for education costs without having to pay tax on the interest,
Receive tax-free educational benefits from your employer, and
Take a business deduction for work-related education.

Note.

You generally cannot claim more than one of the benefits described in the lists above for the same qualifying education expense.

Terminology.

In this publication, wherever appropriate, we have tried to use the same or similar terminology when referring to the basic components of each education benefit. Some of the terms used are:

Qualified education expenses,
Eligible educational institution, and
Modified adjusted gross income.

Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses are not necessarily allowed for each benefit. For example, the cost of room and board is a qualified education expense for the qualified tuition program, but not for the education savings bond program.

Comments and suggestions.

We welcome your comments about this publication and your suggestions for future editions.

You can e-mail us at *taxforms@irs.gov. Please put “Publications Comment” on the subject line.

You can write to us at the following address:

Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Avenue NW
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Useful Items - You may want to see:

Form (and Instructions)

1040
U.S. Individual Income Tax Return
1040A
U.S. Individual Income Tax Return
1040EZ
Income Tax Return for Single and Joint Filers With No Dependents
2106
Employee Business Expenses
2106–EZ
Unreimbursed Employee Business Expenses
5329
Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
8815
Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989
8863
Education Credits (Hope and Lifetime Learning Credits)
Schedule A (Form 1040)
Itemized Deductions

See chapter 13, How To Get Tax Help, for information about getting these publications and forms.

Publication 970Introductory Material