Maine’s Educational Opportunity Tax Credit (EOTC) is an incentive program that may benefit Maine-resident taxpayers paying off student loans and working in the State of Maine. The credit was created to promote economic opportunity for Mainers by ensuring access to the training and higher education that higher‐paying jobs require.
The incentive is separate from the existing deduction for student loan interest paid, and it essentially provides eligible taxpayers a reimbursement for payments they’ve made on their student loans. Since the EOTC for one degree can be as high as $4,404 in 2020, eligible Mainers can see significant savings.
Which taxpayers are eligible?
For tax years beginning on or after January 1, 2016, you may qualify if you:
- were a Maine resident for the full tax year;
- worked or were self-employed in Maine at least 16 hours/week during the tax year (even if your employer is located elsewhere), were deployed for military service, or were employed at least part-time on a vessel at sea;
- did not work outside of Maine for more than three months of the tax year (if you worked at least part‐time in Maine for any part of a month, you are considered to have worked in Maine for that entire month); AND
- You earned a:
- Bachelors or Associates degree after 2007 and before 2016 from a Maine school, OR
- Bachelors or Associates degree after 2015 from any accredited school in the United States, OR
- Graduate Degree from a Maine school after 2015.
Individuals that did not make any eligible student loan payments during the tax year do not qualify for the credit.
Eligible education loan payments for the year are the smaller of:
- Benchmark loan payments
- Actual loan payments due
- Actual loan payments paid
What about student loans in forbearance or deferment?
According to Maine Revenue Services, “For tax years beginning before January 1, 2020, if your loan is deferred or in forbearance and there is no loan payment due, any payments you make while the loan is deferred or in forbearance are not eligible for the EOTC. However, for tax years beginning on or after January 1, 2020, student loan payments made by individuals in deferment or forbearance, including those subject to a federal student loan administrative forbearance pursuant the federal Coronavirus Aid, Relief, and Economic Security (“CARES”) Act or federal Executive Order, will qualify for the EOTC as long as all other eligibility criteria are met.”
Maine Revenue Services also notes, “your required loan amount due will be the amount that would be otherwise due but for forbearance or deferment. If the amount cannot otherwise be determined, the amount considered due will be equal to the benchmark loan payment.”
What are the potential benefits?
In 2020, the EOTC for one degree can be as high as $4,404. If you earned a qualifying graduate degree or a bachelor’s degree in a non-STEM (science, technology, engineering, or math) field, tax credits may be used to offset your individual income tax liability, are nonrefundable, and may be carried forward for up to 10 years. If you earned a qualifying associate’s degree, regardless of major, or a qualifying STEM-related bachelor’s degree, the credit will be applied to your income tax, and a refund will be issued for the remainder.
In general, the EOTC applies to loans associated with coursework completed after January 1, 2008. The credit is prorated for degree credits earned prior to 2008 and prorated for months not worked in Maine for part‐year residents.
For tax years beginning on or after January 1, 2016, you may include the full loan payments, subject to limitation, for two degrees earned at the same time. If you are claiming a separate credit for each degree earned, you may not include loan payment amounts attributable to both degrees in each separate credit calculation.
What’s involved in the application process?
If you paid your education loan payments directly to the lender, you will need to complete the 2020 EOTC Worksheet. Instructions are also included in this worksheet. A separate worksheet must be completed for each degree if you are claiming the EOTC for more than one.
For the first year of filing the credit, supporting documentation includes a complete copy of your college transcript, proof of the educational loans that qualify for the credit, and proof of the educational loan payments you paid directly to the lender during the tax year, and any additional documentation requested by Maine Revenue Services.
In addition, a 2020 EOTC – Employer/Employee Affidavit must be used if both you and your employer made payments on your eligible education loans directly to the lender during the tax year. If so, you must complete and sign this affidavit and have your employer sign as well.
Program details and helpful information may be found at Maine.gov’s 2020 EOTC FAQ Center.
How can I take full advantage of the EOTC?
For tax years beginning on or after January 1, 2016, there is no credit-hour limit or income limit, meaning you may apply for the EOTC even if your income is above the threshold for a student loan deduction. The credit isn’t new this year, so taxpayers may amend returns to claim the credit back to 2016.
Contact me today if you have questions, need help applying, or need to file amended returns. Please also visit our COVID-19 Financial Resource and Tax Center for additional information on related matters.
by David Jean, CPA, CCIFP, CExP
David Jean is a firm principal and the Practice Leader for ARB’s Business Advisory, Construction & Real Estate, and Succession Planning Services Groups. David focuses primarily on financial accounting and consulting for construction, real estate, and manufacturing companies. He is a member of The Certified Public Accountant Advisory Council, an exclusive, 10-member council formed to serve as the resource team for the National Association of Surety Bond Producers (NASBP).