Author Topic: Deferred income and Hope Scholarship Tax Credit  (Read 2935 times)


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Deferred income and Hope Scholarship Tax Credit
« on: January 21, 2015, 04:33:47 PM »

Does anyone know if income put into a tax-deferred account "counts" as income for reaching the limit on the Hope Scholarship Tax Credit? I am thinking specifically of a deferred income account vs. a retirement account, but I suppose my question pertains to both.


From the web:
The Hope Scholarship provides a federal income tax credit based on the first $4,000 in postsecondary education expenses paid by the taxpayer during the tax year.

Changes for 2009 and 2010

The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) included the American Opportunity Tax Credit, which expands the Hope Scholarship. This expansion is temporary, limited to the 2009 and 2010 tax years. However, President Obama's FY2010 budget proposes making these changes permanent. The changes are as follows:

Increases the amount from $1,800 to $2,500.
The amount of the credit is 100% of the first $2,000 in qualified expenses and 25% of the second $2,000. (Previously it was 100% of the first $1,200 and 50% of the second $1,200.)

The number of years allowed was increased from 2 to 4.
The income phaseouts were increased to $80,000/$90,000 (single filers) and $160,000/$180,000 (joint filers).
Course materials added as a qualified expense in addition to tuition and fees.
40% refundable (max $1,000) to allow even low income students who have no tax liability to obtain a partial benefit.


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Re: Deferred income and Hope Scholarship Tax Credit
« Reply #1 on: January 21, 2015, 04:41:01 PM »
This is the American Opportunity tax credit, yes? The Hope scholarship is the old name for it, I believe.

You qualify for this tax credit based on your MAGI. This is your AGI, but adding back some things.
Foreign earned income exclusion,
Foreign housing exclusion,
Foreign housing deduction,
Exclusion of income by bona fide residents of American Samoa, or of Puerto Rico.

Your AGI is all of your income, minus above the line deductions. If you put money into a traditional 401k/403b/457b, then that money is not even reported as income on your W-2, and hence, will not be included in AGI. If you put money into a traditional IRA, then it is an above the line deduction from your income, which means again, it is not included in your AGI.

tl;dr - No, pre-tax contributions (ie Traditional contributions) to a retirement account do not count as income for the American Opportunity Tax credit because you qualify for the credit based on MAGI, and such contributions are not part of MAGI.
« Last Edit: January 21, 2015, 04:43:31 PM by johnny847 »


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Re: Deferred income and Hope Scholarship Tax Credit
« Reply #2 on: January 22, 2015, 08:44:13 AM »