Tax Benefits for Higher Education
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Transcript Tax Benefits for Higher Education
EASFAA 2014
Stephen G Brown
Fordham Law School
Who Cares !
Joint Committee on Taxation
$78.9 billion in forgone tax revenue
2011- 2015
Or is it financial aid?
Need?
Winning votes?
Good for country ?
Tax Treatment
Incentives for current expenses
Impact in following year tax due
Student loan tax treatment
Incentives for saving
Tax Credit
Reduces amount owed in taxes
Dollar by dollar basis
May be refundable or not
AOTC
LLC
Tax Deduction
Reduces taxable income
“above the line” or itemized
Different impact
Standard deduction versus itemizing
Tuition and fees - not extended yet for 2014 (S 2260)
Student Loan Interest
Tax Exemption
Like deduction, they reduce taxable income
Fixed dollar amount
Personal exemption for parents of students 19-23
Continues ability to claim “dependents”
Tax Exclusion
Like deduction in that taxable income reduced
IRC explicitly excludes from income
117c qualified scholarship
Educational expenses, etc
Current Expenses
Is my Scholarship Taxable?
117c qualified Scholarship
Degree candidate
Qualified educational expenses
Tuition, fees, books, supplies, equipment
Not compensation for teaching, research, work
Employer tuition benefits
Not only for schools
Benefit – often awarded through HR
Undergrad no tax implications for education
employees
Grad no tax if perform teaching or research
Taxed above $5,250
May require certain grades
Payment may be after completion of the course
Waiting period? Commitment after payment?
May require courses related to job
Qualified Tuition Reduction
Received from eligible education institution
Used at eligible education institution
Need not be the same
Employee or dependant
Undergraduate not taxed
The Tuition Exchange
tm
Consortium of IHEs
600 schools
Worked mainly through HR/Benefits office
Offers tuition benefits at many institutions
Ties to school policies
Schools require application
Balance of trade
Admissions requirements
Tuition and Fees Deduction
EXPIRED DECEMBER 31 2013
Not if AOTC or LLC
Not if married filing separately
MAGI $80,000 ($160,000)
$4,000 income deduction
Tuition and related expenses paid to institution
Not required matriculation
Tuition and Fees…
Income from $65k - $80k (130k-160k)
Max deduction $2,000
Income below $65k ($130k)
Max deduction $4,000
Form 8917
IRC 222
S 2260 may extend to 2015?
Business Deduction
for Work Related Expenses
Must be working
Must itemize or
Must file Schedule C or F
Must be Qualifying Work Related or maintain or
improve skills
Required by employer or law to keep job
Serve bona fide business purpose
Not needed to meet minimum requirements for current
job
Does not qualify for a new trade or business
Qualifying Work Related
Must be Qualifying Work Related or maintain or
improve skills
Required by employer or law to keep job
Serve bona fide business purpose
Not needed to meet minimum requirements for current
job
Does not qualify for a new trade or business
Maintain or Improve skills
Refresher
Current developments
Academic
Tuition and Fees
Books and Supplies
Transportation--Work to school and school to
home
Travel—Is this session deductible?
American Opportunity Tax Credit
TAX CREDIT up to $2,500
(until December 2017)
MAGI Limits
$90,000 single, $180,000 married/joint
Up to 40% refundable
First 4 years
Only 4 years
Tuition, fees and books
No LLC or T & F deduction
Loans used for Qualified expenses count
Not Coverdell exemption
American Opportunity credit …
100% of first $2,000 in expenses
25% of next $2,000
Reduction for MAGI $80-90k ($160-180k)
Form 8863
IRC 25A
40% (up to $1000) refundable
Renewed under American Taxpayer Relief Act of 2012
Lifetime Learning Credit
TAX CREDIT of up to $2,000
Cannot be combined With American Opportunity Tax
Credit
MAGI limits
$62,000 (s) $124,000 Married Joint
Non Refundable, Unlimited years
No matriculation required
Tuition and fees and books paid to institution
$20% of first $10,000
Reduction at $52 – 62k ($104-124k)
Form 8863
Tax Treatments of Student Loans
Student Loan Interest Deduction
Qualified Student Loan
Reduce Income by up to $2,500
Enrolled at least half time when borrowed
MAGI $75,000 ($150,000)
Not from a related person
Tuition, fees, housing, books, transportation (COA)
Amortize fees ( but not reported on 1098-E)
Voluntary interests OK
Student Loan interest…
Phaseouts $60-75k ($125-150k)
IRC 221
Directly deductible
Line 33 1040
Line 18 1040 A
Line 9 1040 EZ
Exclusion of Loan Forgiveness
108(f)
School based LRAPS
Federal Public Service Loan Forgiveness Program
Cancellation of a loan normally a taxable event under
108
If pursuant to a program…
College Savings Incentives
UGMA/UTMA
Uniform Gift to Minors Act
Uniform Trust for Minors
Involves planning
Irrevocable
Reverts to minor at age of majority
Asset? For FAFSA reporting – owned by student
Income excluded if transferred directly to institution
Estate/Gift Exclusion
Not counted towards estate or annual gift limits
Must be paid directly to IHE
Early IRA Distribution penalty
Not subject to 10% penalty
May be subject to regular taxation
Tuition and Fees
Books, supplies, equipment
Special needs
Room and board (if registered at least half time)
Education Savings Bond Interest
Phaseouts MAGI $71,100 and $86,100
$106,650 to $136,650 married jointly
Series EE issued after 1989 or series I
Owner older than 24 at bond issue date
Only for DENENDENT for whom you claim exemption
on tax return
Tuition and fees
Form 8515
QTP (529) Plans
Section 529 of the Internal Revenue Code
“Qualified Tuition Programs”
Pre-paid tuition or college savings
Allows anyone to set up a plan for beneficiary
Sponsored by states in cooperation with investment
firms
Large selection of investments
Accrues tax free and withdrawals federal tax free for at
least half time
Tuition and fees
Room and board
Books, computer
Special needs
QTP (529) Plans
Accrues tax free and withdrawals federal tax free for at
least half time
Tuition and fees
Room and board
Books, computer
Special needs
Transfer to other family member QTP
Coverdell Education Savings
Account
Section 530 of IRC
Many investment options
Beneficiary must be under 18 when set up or special
needs
$2,000 annual limit
Accrues tax free
Tax free withdrawals for educational expenses
Must liquidate at age 30
Contribution limits based on contributor’s MAGI
Coverdell ESA
MAGI less than $110,000 ($220,000)
MAGI = AGI for most taxpayers
Distributions tax free for ADJUSTED Qualified
Educational Expenses
K-12 and higher education expenses
Repeal of 108(f) ?
Renewability of Tuition and Fees deduction
Tax on tuition benefits < $5,250?
Have I exhausted you yet?
Questions
Comments
Snide Remarks
Contact Information
Stephen Brown
Assistant Dean
Fordham Law
[email protected]
212 636 7178