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Tax Benefits for Higher Education

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.

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Tax Benefits for Higher Education

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  1. Tax Benefits for Higher Education EASFAA 2014 Stephen G Brown Fordham Law School

  2. Who Cares !

  3. Joint Committee on Taxation • $78.9 billion in forgone tax revenue • 2011- 2015 • Or is it financial aid? • Need? • Winning votes? • Good for country ?

  4. Tax Treatment • Incentives for current expenses • Impact in following year tax due • Student loan tax treatment • Incentives for saving

  5. Tax Credit • Reduces amount owed in taxes • Dollar by dollar basis • May be refundable or not • AOTC • LLC

  6. 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

  7. Tax Exemption • Like deduction, they reduce taxable income • Fixed dollar amount • Personal exemption for parents of students 19-23 • Continues ability to claim “dependents”

  8. Tax Exclusion • Like deduction in that taxable income reduced • IRC explicitly excludes from income • 117c qualified scholarship • Educational expenses, etc

  9. Current Expenses

  10. Is my Scholarship Taxable? • 117c qualified Scholarship • Degree candidate • Qualified educational expenses • Tuition, fees, books, supplies, equipment • Not compensation for teaching, research, work

  11. 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

  12. Qualified Tuition Reduction • Received from eligible education institution • Used at eligible education institution • Need not be the same • Employee or dependant • Undergraduate not taxed

  13. 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

  14. 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

  15. 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?

  16. Business Deductionfor 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

  17. 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

  18. 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?

  19. 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

  20. 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

  21. 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

  22. Tax Treatments of Student Loans

  23. 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

  24. Student Loan interest… • Phaseouts $60-75k ($125-150k) • IRC 221 • Directly deductible • Line 33 1040 • Line 18 1040 A • Line 9 1040 EZ

  25. 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…

  26. College Savings Incentives

  27. 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

  28. Estate/Gift Exclusion • Not counted towards estate or annual gift limits • Must be paid directly to IHE

  29. 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)

  30. 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

  31. 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

  32. 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

  33. 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

  34. 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

  35. Repeal of 108(f) ? • Renewability of Tuition and Fees deduction • Tax on tuition benefits < $5,250?

  36. Have I exhausted you yet? • Questions • Comments • Snide Remarks

  37. Contact Information Stephen Brown Assistant Dean Fordham Law sbrown@law.fordham.edu 212 636 7178

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