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
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 May be refundable or not AOTC
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
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 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

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, (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 $80-90k ($ k)
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 $52 – 62k ($ k)
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 $60-75k ($ k)
IRC 221
Directly deductible
Line
Line A
Line EZ

25. Exclusion of Loan Forgiveness
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