Over the years, Congress has enacted many tax laws relating to education.
Those laws can be divided into two main categories: (1) items to help taxpayers meet the current higher education expenses and (2) laws to encourage taxpayers to save for future higher education expenses.
The first category can be further divided into three main areas:
(1) Exclusions from taxable income – such as scholarships; employer provided education assistance and working fringe benefits.
(2) Tax deductions for student loan interest; deductions for tuition and fees.
(3) Tax credits including the Hope Credit that is also referred to as the American Opportunity Tax Credit and the Lifetime Learning Credit
The second main category, for help in paying for future education, includes the educational savings bonds (interest not taxable), qualified tuition programs and the Coverdell Educations Savings Accounts.
All these tax benefits should be simplified. For example, the tax incentives (ie Hope Credit, American Opportunity Tax Credit; Lifetime Learning Credit and the deduction for tuition and fees are intended to help taxpayers afford the current higher education expenses. Why not just have one credit to do that? And, why not make the income “phase out” the same instead of the multiple “phase out” levels of today?
That one credit might be 100 percent refundable but “phased out” or limited for very high income taxpayers. There needs to be just one uniform definition of “qualified higher education expenses” that applies to all education tax incentives. It should probably include tuition, books, fees, supplies and equipment.
The Government Accountability Office (GAO) looked at 2009 tax returns and education expenses. It found about 1.5 million taxpayers failed to claim a credit or deduction that they were eligible for. The average benefit lost was about $ 466. That’s mainly due to the unwarranted complexity of the tax laws.
If Congress would simplify the education tax provisions some of the burden on taxpayers could be reduced.
The Treasury Inspector General for Tax Administration (TIGTA) found in 2011 education credits of approximately $ 3,200,000,000 were claimed erroneously.
The current education tax provisions don’t seem to really help the low to middle income families. It’s time to simplify at least this area of the income tax law.
Did you hear: “If you find a path with no obstacles on it, it probably does not go anywhere.”
— John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.