The Hope Credit is a type of tax credit that helps reduce the amount of United States federal income tax a person pays. This tax credit is intended for individuals who pay for higher education either for themselves or for another person. It is not available to everyone who has tuition expenses, however, and those who take this credit have to meet strict eligibility requirements. The amount of credit for which a person qualifies usually depends on the amount of qualified expenses he can claim on his tax return. For the Hope Credit, qualified higher education expenses include such things as tuition, books, and related expenses.
Sometimes taxpayers confuse the Hope Tax Credit with a deduction on their tax forms. A tax credit, however, differs from a deduction. When a person takes a deduction, he reduces his taxable income. The credit, however, can reduce the amount of money a person owes. For example, if a person owes $5,000 US Dollars (USD) in taxes and receives a $1,000 USD Hope Tax credit, he would then owe $4,000 USD in federal income taxes; a mere reduction in income may not affect the amount of money a person owes as much.
There are eligibility requirements a person must meet to be eligible for the Hope Tax Credit. For example, an individual who wants to take this credit must have higher education expenses for a qualified student. The qualified student may be the taxpayer himself or a dependent that he can claim on his federal return. A son, daughter, or spouse may meet this description, for example.
In order to be considered a qualified student, a person must typically be in the first four years of undergraduate study. He must also be enrolled in a degree or certificate program at least half time. If a student has been convicted of certain felony offenses, he or the taxpayer that claims him may not be eligible to take the Hope Credit. Likewise, some students may not meet the requirements for qualified student status.
Eligibility for a Hope Credit may also depend on income and the expenses the taxpayer has on behalf of the student. Some higher income taxpayers may not qualify for the credit. Additionally, certain expenses may not count for this tax credit. Typically, such expenses as room, board, and transportation do not qualify. Medical expenses paid on a student's behalf may be excluded as well.
