Education Tax Issues Slides
Affordable Care Act Education Tax Issues
Double Dip
American Opportunity Credit $2,500 per eligible student First four years Permanent 2016 Tax Act
p. A1
Eligible Student Enrolled at least half time Not convicted of controlled substance
p. A2
Qualified Expenses Paid on behalf of Taxpayer Taxpayer’s spouse Taxpayer’s dependent (claim an exemption) Room and board Insurance Medical fees Transportation
p. A2
p. A3
Adjusted Qualified Education Expenses QHEE (Tax-free scholarships and fellowships) (Pell grants) (Expenses computing withdrawal from Coverdell) (Expenses computing withdrawal from §529 plan) (Other nontaxable payments received for educational expenses) AQEE
Calculating Credits Start with Part III
p. A4 - 5
Calculating the Credits
p. A4 - 5
Calculating the Credits
p. A4 - 5
Calculating the Credits
p. A4 - 5
Lifetime Learning Credit Nonrefundable 20% of first $10,000 QHEE Allowed for all years of postsecondary education (includes graduate and professional school)
p. A6
Lifetime Learning Credit The lifetime learning credit also starts phasing out at higher AGI levels for couples…$111,000 to $131,000. The AGI range for singles is $55,000 to $65,000.
Eligible Student One or more courses
MFS taxpayers Dependents on another taxpayer’s return Nonresident aliens
p. A6
Qualified Expenses
p. A6
Same as for AOC except includes: Courses for acquiring or improving job skills Student activity fees, books, supplies, and equipment if they must be paid for enrollment or attendance
p. A9
Coordination of Benefits Pay tuition in January instead of December 2013
2014
2015
2016
2017
Spring tuition Fall tuition Total AQEE
$0 $5,000 $5,000 $5,000 $5,000 5,000 5,000 5,000 5,000 0 $5,000 $10,000 $10,000 $10,000 $5,000
AOC Lifetime learning credit Total credits
$2,500
$2,500
$2,500
$2,500
Total
$10,000 $1,000 1,000 $11,000
Tuition and Fees Deduction
p. A12
Can reduce AGI up to $4,000 Not allowed with AOC or lifetime learning credit on same student Extension of above-the-line deduction for qualified tuition and related expenses. The provision extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).
Qualified Expenses Tuition and related expenses Student activity fees, books, supplies, equipment if paid as condition of enrollment or attendance
p. A12 - 13
p. A12 - 13
Adjusted Qualified Education Expenses QHEE (Tax-free scholarships and fellowships) (Pell grants) (Expenses computing withdrawal from Coverdell) (Income portion from §529 plan)
(Expenses computing tax-free interest from US savings bond) (Other nontaxable payments received for educational expenses) AQEE
Not Allowed
p. A13
Paid by dependent MFS Nonresident alien and not treated as resident alien for tax Deducted under another Code provision Claiming AOC or lifetime learning credit for same student
Third-Party Payment
p. A13
Treated as paid by the student If taxpayer claims the exemption, no one is allowed the deduction If taxpayer is eligible to claim the exemption and does not, no one can claim the deduction
p. A16
Qualified Tuition Plans - §529 Plans No deduction for contributions No tax on distributions unless it exceeds AQEE
Improvements to Section 529 accounts.
The provision expands the definition of qualified higher education expenses for which tax-preferred distributions from 529 accounts are eligible to include computer equipment and technology. The provision modifies 529account rules to treat any distribution from a 529 account as coming only from that account, even if the 11 individual making the distribution operates more than one account. The provision treats a refund of tuition paid with amounts distributed from a 529 account as a qualified expense if such amounts are re-contributed to a 529 account within 60 days. The provision is effective for distributions made or refunds after 2014, or in the case of refunds after 2014 and before the date of enactment, for refunds re-contributed not later than 60 days after date of enactment.
U.S. Savings Bonds Interest income excludable if Used to pay for QHEE Contributed to QTP or Coverdell ESA
Qualified Expenses Tuition and fees Contributions to Coverdell ESA Contributions to §529 Plan
p. A17
U.S. Savings Bonds The 2016 income caps are higher for tax-free EE bonds used for education. The exclusion starts phasing out above $116,300 of AGI for married couples and $77,550 for singles. It ends when AGI hits $146,300 and $92,550, respectively.
Coverdell ESA Distributions can be applied to elementary and secondary education
p. A20
Coverdell Contributions Not deductible Subject to annual gift tax exclusion Cannot exceed $2,000 per beneficiary Must be made by unextended due date of return
p. A20
Excess Contributions
p. A22
Greater than $2,000 annual contribution limit Excess contributions from preceding years reduced by Distributions during the year Contribution limit for current year minus any amount contributed for current year
Excess Contributions
p. A22
6% excise tax applies each year the excess contribution remains in Coverdell ESA
Distributions Example 16
p. A24
Rollover
p. A26
Form 1098-T
p. A27 - 33
Qualified Student Loans 1. Taxpayer, taxpayer’s spouse, or taxpayer’s dependent 2. QHEE 3. Student enrolled at least half time
p. A33
Student Loan Interest Deduction
p. A34
1. Filing status is not MFS 2. No one else claims exemption for taxpayer 3. Legally obligated to pay interest 4. Actually paid interest Interest paid by 3rd party=interest by taxpayer
Federal Perkins Loans
p. A36 - 37
William D. Ford Direct Loans
p. A38 - 40
Direct subsidized loans Direct unsubsidized loans Direct PLUS loans Direct consolidation loans
Scholarships and Fellowships
p. A40 - 42
Exempt if: 1. Student is candidate for degree at eligible educational institution 2. Used to pay qualified education expenses 3. Not payment for services required as condition for receiving the award
Qualified Tuition Reduction Below Graduate Level
Graduate
p. A42 - 43
Other Education Assistance Pell grants Fulbright grants Veterans’ benefits
p. A44
p. A44 - 45
Business-Related Education Expense 1. Required by employer or law to keep present salary, status, or job 2. Maintains or improves skills needed in present work
Transportation
Work
p. A46 - 47
School Home
p. A50 - 51
Employer-Provided Education Assistance Educational Assistance Programs Exclude up to $5,250
Working-condition fringe benefit
Summary Thank you for attending our program! Stuart Sobel Tax Media Network, Inc. www.taxmedianetwork.com www.taxmediastore.com
Double Dip
American Opportunity Credit $2,500 per eligible student First four years Permanent 2016 Tax Act
p. A1
Eligible Student Enrolled at least half time Not convicted of controlled substance
p. A2
Qualified Expenses Paid on behalf of Taxpayer Taxpayer’s spouse Taxpayer’s dependent (claim an exemption) Room and board Insurance Medical fees Transportation
p. A2
p. A3
Adjusted Qualified Education Expenses QHEE (Tax-free scholarships and fellowships) (Pell grants) (Expenses computing withdrawal from Coverdell) (Expenses computing withdrawal from §529 plan) (Other nontaxable payments received for educational expenses) AQEE
Calculating Credits Start with Part III
p. A4 - 5
Calculating the Credits
p. A4 - 5
Calculating the Credits
p. A4 - 5
Calculating the Credits
p. A4 - 5
Lifetime Learning Credit Nonrefundable 20% of first $10,000 QHEE Allowed for all years of postsecondary education (includes graduate and professional school)
p. A6
Lifetime Learning Credit The lifetime learning credit also starts phasing out at higher AGI levels for couples…$111,000 to $131,000. The AGI range for singles is $55,000 to $65,000.
Eligible Student One or more courses
MFS taxpayers Dependents on another taxpayer’s return Nonresident aliens
p. A6
Qualified Expenses
p. A6
Same as for AOC except includes: Courses for acquiring or improving job skills Student activity fees, books, supplies, and equipment if they must be paid for enrollment or attendance
p. A9
Coordination of Benefits Pay tuition in January instead of December 2013
2014
2015
2016
2017
Spring tuition Fall tuition Total AQEE
$0 $5,000 $5,000 $5,000 $5,000 5,000 5,000 5,000 5,000 0 $5,000 $10,000 $10,000 $10,000 $5,000
AOC Lifetime learning credit Total credits
$2,500
$2,500
$2,500
$2,500
Total
$10,000 $1,000 1,000 $11,000
Tuition and Fees Deduction
p. A12
Can reduce AGI up to $4,000 Not allowed with AOC or lifetime learning credit on same student Extension of above-the-line deduction for qualified tuition and related expenses. The provision extends through 2016 the above-the-line deduction for qualified tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).
Qualified Expenses Tuition and related expenses Student activity fees, books, supplies, equipment if paid as condition of enrollment or attendance
p. A12 - 13
p. A12 - 13
Adjusted Qualified Education Expenses QHEE (Tax-free scholarships and fellowships) (Pell grants) (Expenses computing withdrawal from Coverdell) (Income portion from §529 plan)
(Expenses computing tax-free interest from US savings bond) (Other nontaxable payments received for educational expenses) AQEE
Not Allowed
p. A13
Paid by dependent MFS Nonresident alien and not treated as resident alien for tax Deducted under another Code provision Claiming AOC or lifetime learning credit for same student
Third-Party Payment
p. A13
Treated as paid by the student If taxpayer claims the exemption, no one is allowed the deduction If taxpayer is eligible to claim the exemption and does not, no one can claim the deduction
p. A16
Qualified Tuition Plans - §529 Plans No deduction for contributions No tax on distributions unless it exceeds AQEE
Improvements to Section 529 accounts.
The provision expands the definition of qualified higher education expenses for which tax-preferred distributions from 529 accounts are eligible to include computer equipment and technology. The provision modifies 529account rules to treat any distribution from a 529 account as coming only from that account, even if the 11 individual making the distribution operates more than one account. The provision treats a refund of tuition paid with amounts distributed from a 529 account as a qualified expense if such amounts are re-contributed to a 529 account within 60 days. The provision is effective for distributions made or refunds after 2014, or in the case of refunds after 2014 and before the date of enactment, for refunds re-contributed not later than 60 days after date of enactment.
U.S. Savings Bonds Interest income excludable if Used to pay for QHEE Contributed to QTP or Coverdell ESA
Qualified Expenses Tuition and fees Contributions to Coverdell ESA Contributions to §529 Plan
p. A17
U.S. Savings Bonds The 2016 income caps are higher for tax-free EE bonds used for education. The exclusion starts phasing out above $116,300 of AGI for married couples and $77,550 for singles. It ends when AGI hits $146,300 and $92,550, respectively.
Coverdell ESA Distributions can be applied to elementary and secondary education
p. A20
Coverdell Contributions Not deductible Subject to annual gift tax exclusion Cannot exceed $2,000 per beneficiary Must be made by unextended due date of return
p. A20
Excess Contributions
p. A22
Greater than $2,000 annual contribution limit Excess contributions from preceding years reduced by Distributions during the year Contribution limit for current year minus any amount contributed for current year
Excess Contributions
p. A22
6% excise tax applies each year the excess contribution remains in Coverdell ESA
Distributions Example 16
p. A24
Rollover
p. A26
Form 1098-T
p. A27 - 33
Qualified Student Loans 1. Taxpayer, taxpayer’s spouse, or taxpayer’s dependent 2. QHEE 3. Student enrolled at least half time
p. A33
Student Loan Interest Deduction
p. A34
1. Filing status is not MFS 2. No one else claims exemption for taxpayer 3. Legally obligated to pay interest 4. Actually paid interest Interest paid by 3rd party=interest by taxpayer
Federal Perkins Loans
p. A36 - 37
William D. Ford Direct Loans
p. A38 - 40
Direct subsidized loans Direct unsubsidized loans Direct PLUS loans Direct consolidation loans
Scholarships and Fellowships
p. A40 - 42
Exempt if: 1. Student is candidate for degree at eligible educational institution 2. Used to pay qualified education expenses 3. Not payment for services required as condition for receiving the award
Qualified Tuition Reduction Below Graduate Level
Graduate
p. A42 - 43
Other Education Assistance Pell grants Fulbright grants Veterans’ benefits
p. A44
p. A44 - 45
Business-Related Education Expense 1. Required by employer or law to keep present salary, status, or job 2. Maintains or improves skills needed in present work
Transportation
Work
p. A46 - 47
School Home
p. A50 - 51
Employer-Provided Education Assistance Educational Assistance Programs Exclude up to $5,250
Working-condition fringe benefit
Summary Thank you for attending our program! Stuart Sobel Tax Media Network, Inc. www.taxmedianetwork.com www.taxmediastore.com
