EASFAA 2014
Stephen G Brown
Fordham Law School
Who Cares !
 Joint Committee on Taxation
 $78.9 billion in forgone tax revenue
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
sbrown@law.fordham.edu
212 636 7178