Life After Hofstra Law School
Tax Benefits
Parent and Student Guide to Federal Tax Benefits for Tuition and Fees - The National Association of Student Financial Aid Administrators (NASFAA) publishes the Parent and Student Guide to Federal Tax Benefits for Tuition and Fees to provide students, parents, counselors, and others with general guidance to federal education-related tax benefits. The Guide includes basic information about the federal Hope Scholarship tax credit, the Lifetime Learning tax credit, and the Tuition and Fees Tax Deduction. More detailed information is available from the IRS links included at the end of the Guide. www.nasfaa.org/redesign/parentsstudents.html
Another good resource regarding education related tax benefits is the FinAid web site available at www.finaid.org/otheraid/tax.phtml
www.irs.gov – This site is the official online resource for all federal tax information. You'll find a powerful internal search engine as well as all the forms issued by the IRS.
The trend in the late 1990s has been to provide educational financing through tax breaks. Enrolled students and graduates should be particularly concerned with Employer Sponsored Tuition programs, Educational Expense Deduction (in lieu of the Lifetime Learning Credits) and the Student Loan Interest deduction.
IRS Publication 970, Tax Benefits for Higher Education is a great source for tax information regarding these programs. There have been several changes in 2001 as a result of the Tax Relief Act of 2001. This page serves as an introduction to the changes, but should not be considered legal advice. www.irs.gov/publications/p970/index.html
As of January 1, 2002, employers may provide tax free tuition benefits up to $5,250 for study leading to a graduate degree. Prior to this, only undergraduate benefits up to $5,250 or work related benefits were exempt from taxation. Benefits used to improve performance in a current position and not qualify for a new career are still tax exempt up to an unlimited dollar amount.
As of January 1, 2002, in lieu of the Lifetime Learning Credits, taxpayers with higher incomes can take deductions for some tuition expenses, and taxpayers with lower incomes can take higher deductions. If your 2004 or 2005 AGI does not exceed $65,000 ($130,000 in the case of a joint return) you may deduct $4,000 in educational expenses.
The Student Loan Interest Deduction allows you to deduct, for federal tax purposes, all student loan interest paid in any tax year. Federal and Private Educational, but not family or employer, loans are eligible. The deduction may be taken in any year in which student loan interest is paid (There was formerly a 60 month limit). The income limitation phase outs range from $50,000 to $65,000 for single filers and $105,000 to $135,000 for joint filers. At incomes below the range, all qualified interest is deductible.
For those who are planning their children's educations, there have been a number of improvements to the Section 529 plans and the Coverdell Education Savings Plan (formerly Education IRA). Withdrawals from 529 plans are not taxable, the contribution limits on the Coverdell Accounts have increased to $2,000 and Coverdell proceeds may be used for primary and secondary educational expenses.