On Jan. 2, President Obama signed into law a last-minute compromise that settles many unresolved fiscal cliff tax issues, some of which will benefit college students and families. The American Taxpayer Relief
Act of 2012 (H.R. 8) also includes new limits to the charitable giving deduction that may impact higher education institutions.
The following is a brief summary of the higher
education-related tax provisions in the new law.
Click here to download a PDF of this summary.
Higher Education Access Provisions
Nine million claimed (2009)
$2,500 tax credit per eligible student for qualified education expenses for an individual earning up to $80,000 ($160,000 for joint filing), phasing down to $1,875 for those earning $90,000 ($180,000 for joint filing)
Eligible expenses: tuition, fees, and required course materials
Forty percent refundable
First four years of postsecondary education
Five-year extension (expires Dec. 31, 2017)
Cost = $67.3 billion over 10 years (Joint Committee on Taxation [JTC], January 2013)
Employer-provided Educational Assistance Benefits (IRC Sec. 127)
One million employees benefited (2007-08 academic year)
Up to $5,250 in tax-free employer provided educational assistance per year
Eligible expenses: tuition, fees and similar expenses, books, supplies, and equipment
Permanent extension
Cost = $11.5 billion over 10 years (JCT, January 2013)
Student Loan Interest Deduction (SLID) (IRC Sec. 221)
Nine million claimed (2009)
Deduction of up to $2,500 in student loan interest
Eligible: tuition, fees, course materials, room and board, and other necessary expenses
Permanent extension
Cost = $9.7 billion over 10 years (JCT, January 2013)
Coverdell Education Savings Accounts (ESA) (IRC Sec. 530)
Save up $2,000 annually tax-free
Eligible expenses: tuition, fees, course materials, and room and board
Permanent extension
Score = $271 million over 10 years (JCT, January 2013)
Above-the-Line Deduction for Qualified Tuition and Related Expenses (IRC Sec. 222)
1.7 million claimed (2009)
Maximum deduction is $4,000 for an individual earning up to $65,000 ($130,000 for a joint filer), phasing down to $2,000 for those earning $80,000 ($160,000 for a joint filer)
Eligible expenses: tuition and fees
Two-year extension retroactive to Dec. 31, 2011 (expires Dec. 31, 2013)
Cost = $1.7 billion over 10 years (JCT, January 2013)
Charitable Giving Provisions
Itemized Deduction Limitation for Certain Taxpayers (IRC Sec. 68)
Reinstates the so-called “Pease Limitations” on itemized deductions, named after the Congressman who authored it
Reduces the deductibility of most itemized deductions, including charitable deductions, by the lesser of three percent of adjusted gross income above a specified threshold or 80 percent of a person’s itemized deductions
Limitation applies to individuals with income of at least $250,000 and couples with income of $300,000 or more
IRA Charitable Rollover (IRC Sec. 408)
Permits IRA owners to make charitable gifts totaling up to $100,000 per year from their IRAs directly to eligible charities, including colleges and universities
Two-year extension retroactive to Dec. 31, 2011 (expires Dec. 31, 2013)
Cost = $1.3 billion over 10 years (JCT, January 2013)