From: U.S. Department of the Treasury <subscriptions@subscriptions.treas.gov>
Date: Tue, Jun 10, 2014 at 10:26 AM
Subject: Helping students and families access college tax benefits
To: iammejtm@gmail.com
| Having trouble viewing this email? View it as a Web page. You are subscribed to Blog - "Treasury Notes" for U.S. Department of the Treasury. This information has recently been updated, and is now available.
As part of the Administration's effort to promote college affordability, the Treasury Department is releasing a fact sheet to educate colleges and universities, tax preparers, software providers, and other stakeholders to help students and their families claim education-related tax benefits. Because of complex rules and a lack of awareness of their options, many students fail to maximize the tax benefits they deserve, missing out on critical financial support as they work to achieve a postsecondary education. In 2009 the President expanded financial aid for students by creating the American Opportunity Tax Credit (AOTC). This credit provides up to $2,500 per student for tuition, fees, and course materials for each of the first four years of postsecondary education—a total of up to $10,000 in support for college. About 11.5 million families benefit and save an average of more than $1,100 per year. For the nearly 9 million students who receive Pell Grants, however, applying for the AOTC can be especially complex. As a result, these students forego hundreds of millions of dollars in credits each year. While the President has proposed simplifying the AOTC for Pell Recipients as part of his 2015 budget, better information can empower students and their families to make better choices starting now. Claiming college benefits can require a complicated decision at tax time. When students and their families file their tax returns, they can either allocate their Pell Grants and similar scholarships to tuition, fees, and course materials, or to living expenses. If allocated to tuition and fees, the scholarship is tax free, but will often reduce the amount of AOTC a family can claim. If used for living expenses, the scholarship is taxable to the student but does not affect AOTC eligibility. Students have this choice regardless of how the school applies the scholarship. But many students do not realize that they have this choice, and that they could increase their AOTC by treating a portion of their Pell Grants as taxable income. In fact, most Pell Grant recipients should claim at least $2,000 in tuition and fees for the AOTC, even if that means allocating some of their scholarship money to living expenses and counting those amounts as taxable income. This is because the AOTC provides a 100 percent credit for the first $2,000 of qualified tuition and fees (followed by a 25 percent credit for the next $2,000). Beyond this rule of thumb, however, the right choice depends on the student's and their family's circumstances and involves numerous factors, such as the amount of tuition and living expenses, the amount and terms of their scholarship, the income of the student and their family, and other tax-related factors. As a result, the decision at tax time needs to be tailored to each student's circumstances. To help, the IRS has information available and is working to add questions and answers to its website to provide further guidance. The Departments of Treasury and Education are reaching out to educate students, families, financial aid administrators, and tax preparation providers to ensure that all students and families receive the education tax credits for which they qualify. If you want to help a student afford a postsecondary education, encourage them to look into maximizing their tax benefits. They may find that through careful consideration of their options, they are eligible for a lot more benefits. For more information as well as examples of how to maximize college tax benefits, read Treasury's Fact Sheet on the Interaction of Pell Grants and Tax Credits.
Adam Looney is Deputy Assistant Secretary for Tax Analysis at the United States Department of the Treasury.
|
Jeremy Tobias Matthews
No comments:
Post a Comment