Maine Educational Opportunity Tax Credit: A Significant (and Potentially Underused) Tax Credit

By Merrill Barter October 20, 2012

The Maine Educational Opportunity Tax Credit is a credit against Maine income taxes for eligible education loan payments made by qualifying individuals, or their employers.  The credit was established in 2008 as a way to encourage Mainers to earn their college degree from a Maine institution and to pursue a career in Maine post-graduation.  Similarly, the program also encourages Maine businesses to stay or expand in Maine and to hire employees who have graduated from a Maine college or university.

The Educational Opportunity Tax Credit is a powerful incentive because it essentially reimburses a qualifying individual, or their employers, for eligible student loan payments made.  In order to qualify for the program, the individual must meet all of the following criteria:

• The individual was a Maine resident while attending a Maine college or university (including junior college) in pursuit of an associate or bachelor’s degree;
• All coursework for the associate or bachelor’s degree was performed at a Maine college or university (including study outside the state if it is part of the college or university program);
• The individual obtained an associate or bachelor’s degree from a Maine college or university after 2007; and
• After graduation, the individual is a Maine resident working for an employer located in Maine.

The amount of the credit is based on the amount of eligible education loan payments made each year, limited to the benchmark loan payment amount determined yearly by the State Tax Assessor.  In 2011, the benchmark loan payment amount for an associate degree is $68 per month and for a bachelor’s degree is $344 per month.  Therefore, the maximum available credit for 2011 is $816 or $4,128, respectively.  The 2012 benchmark loan payment amounts are $65 and $342.  The credit can be claimed each year that eligible education loan payments are made.

The amount of the credit is further limited by the number of credit hours earned after 2007. A qualifying individual who began taking classes prior to January 1, 2008, but graduated after that date, is eligible for a prorated portion of the credit.

The credit is non-refundable, meaning you can only use the credit to the extent that you have state income tax liability.  Any unused credit can be carried forward to future tax years for a period of 10 years.  However, for years beginning on or after 1/1/2013, the credit is refundable if the qualifying individual obtains an associate or bachelor’s degree in science, technology, engineering or mathematics.  A refundable credit allows the taxpayer to receive a credit (a refund) in excess of their state tax liability.

Eligible education loan payments are payments made by, or on behalf of, a qualifying individual towards education loan amounts that were awarded as part of a financial package for attendance at a Maine college or university.  Payments in excess of the minimum amounts due, as required by the financial institution holding the loan, are not eligible payments.

A Maine employer who makes eligible education loan payments on behalf of a qualifying employee may claim the credit in much the same way as an individual would.  Qualifying employees include individuals employed by a Maine company who currently are serving on active duty or in the reserves.  If both the individual and the individual’s employer make eligible education loan payments, each can claim their portion of the credit; however, the total credit claimed by both parties cannot exceed the total allowable credit.

More information and the necessary forms can be found at the Maine Revenue Services website for individuals and employers and the Opportunity Maine Program website, which supports the Educational Opportunity Credit program, among other initiatives.

For more information about the Maine Educational Opportunity Credit, please contact Merrill Barter or your BNN advisor at 1.800.244.7444.