The fiscal cliff legislation Congress approved on Jan. 1 contains a number of tax provisions that will benefit students and families, along with new limits to the charitable giving deduction that may impact higher education institutions.
The American Taxpayer Relief Act of 2012 (H.R. 8), a package of tax increases, tax cuts and a delay in the automatic spending reduction known as "sequestration," passed the Senate by a vote of 89-8 in the early hours of Jan. 1, with the House following late that evening by a vote of 257-167 (for a summary of the major provisions, see National Journal).
Among the most significant of the higher education tax incentives included in the measure is a five-year extension of the American Opportunity Tax Credit (AOTC), which allows students and their parents to claim up to $2,500 a year for college expenses, and benefits 9 million families a year. Other incentives include:
- Permanent status for Sec. 127 employer-provided education expenses, the Student Loan Interest Deduction, and Coverdell Education Savings Accounts. (Previously, they had been temporary parts of the tax code that needed to be renewed periodically.)
- An extension through Dec. 31, 2013, of the above-the-line tuition tax deduction, allowing students and families to deduct between $2,000 and $4,000 of tuition and fees each year, depending on income.
- An extension of the research and development tax credit through Dec. 31, 2013.
- An extension through Dec. 31, 2013, of the IRA Rollover that allows taxpayers donate funds from an IRA to charitable organizations without incurring a tax liability.
- A provision that lowers the value of charitable contributions for individuals whose income exceeds $250,000 and married taxpayers filing jointly with incomes more than $300,000.
A significant concern for the higher education community with the measure as passed is that it postpones the multi-billion-dollar impact of sequestration.
The debt ceiling deal hammered out by the president and Congress in August 2011 included a "triggered" budget cut, or sequester, unless they found a way to cut $1.2 trillion from the budget by the end of 2012. The legislation signed by the president on Jan. 2 postpones this process until March 1.
Unless Congress intervenes beforehand, most higher education programs will face considerable reductions, although the amounts have been in flux. These cuts would be especially harsh on research funding at the National Institutes of Health (roughly $2 billion) and the National Science Foundation (roughly $500 million). Many Department of Education programs would also be reduced. However, federal student loans would largely be protected, and Pell Grants are actually scheduled to increase for the 2013-14 academic year.
Fiscal Cliff Deal Spares Higher Education Research Funding, Tuition Tax Credit
Huffington Post (Jan. 2, 2012)
Deal Delays Across-the-Board Cuts
Inside Higher Ed (Jan. 2, 2012)
Congress Approves Deal to Head Off Worst Effects of 'Fiscal Cliff'
The Chronicle of Higher Education (Jan. 1, 2012)
What You Need to Know About the Bipartisan Tax Agreement (White House)
Dates and Deadlines
Dec. 31: Debt ceiling reached. Treasury Secretary Timothy Geithner has initiated a “debt issuance suspension period,” which ensures the government avoids exceeding its current debt limit of $16.394 trillion through Feb. 28. Congressional action will be needed by that date to increase the debt ceiling.
Late January/Early February: President’s State of the Union Address and release of the administration’s FY 2014 budget request.
March 1: Action must be taken on sequestration.
March 27: Continuing resolution funding federal agencies for FY 2013 expires.
2013 Senate calendar
2013 House calendar