Tax Incentives for Children and Students
Two especially important
provisions included in the Taxpayer Relief Act, signed into law during the 1st session of the 105th Congress, are
the Child Tax Credit and the Education Tax Initiatives. The chart below describes the tax incentives in more detail.
| Type of Tax Incentive | Amount of Tax Incentive | Date that Tax Incentive is Effective | Income Level Ceiling for Full Benefit (Joint Income) |
Income Level Ceiling for Full Benefit (Single Income) |
| Child Tax Credit (for children 16 & under)* | $500 | 1/1/99 | $110,000 | $75,000 |
| HOPE College Tax Credit ** Per Student |
100% of the first $1000, and 50% of the next $1000 (i.e., up to $1,500 for each of the first two years of post-secondary education) | 1/1/98 | $80,000 Partial credit up to $100,000 |
$40,000 Partial credit up to $50,000 |
| Lifetime Learning Credit*** Per Taxpayer |
20% of the first $5,000 (i.e., up to $1,000 for college or graduate school) | 7/1/98 | $80,000 Partial credit up to $100,000 |
$40,000 Partial credit up to $50,000 |
| Education IRA, or Education Savings Account (for children 17 & under)**** | after-tax contribution of up to $500 per year | 1/1/98 | $150,000 Partial credit up to $160,000 |
$95,000 Partial credit up to $110,000 |
| Penalty-free IRA Withdrawals for Higher Education Expenses (i.e., early withdrawal penalties are waived) | N/A | 1/1/98 | N/A | N/A |
| Student Loan Interest Deduction***** | up to $1,000 will be permitted | 1/1/98 | $60,000 Partial deduction up to $55,000 | $40,000 Partial deduction up to $75,000 |
* Child Tax Credit is $400 in 1998.
** Can be claimed in two taxable years.
*** Can apply to any year of college or graduate school for an unlimited number of taxable years.
**** Tax-free withdrawal only if used for higher education.
***** Deduction increases $500 a year through 2001 (i.e., deduction is $2,000 in 2001).
NOTES:
1) "Income" is modified adjusted gross income.
2) A taxpayer must choose between the HOPE credit, the "Lifetime Learning" credit, or an IRA.
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