|
|
The key features of SB 1501 include:
- It is a tax credit, not a deduction.
- The credit is per student, not per taxpayer.
Total tax credit of up to $3,000:
- 50% of higher education expenses up to $3,000 and 30% of higher education
expenses from $3,000 to $8,000:
- Higher education expenses are defined to include any expense in the college's
student budget (cost of attendance) and happed at cost of attendance.
- Expenses are limited to those of the taxpayer, taxpayer's spouse, and any
dependent of the taxpayer allowed as an exemption on the taxpayer's income
tax return. Dependents cannot claim the credit on their own return, but expenses
paid by them can be claimed as the basis for the tax credit on the return
of the taxpayer who claims them as an exemption.
- The taxpayer can prepay for expenses related to an academic period that
begins within the first three months of the next tax year.
- There is no double-dipping on expenses (i.e., expenses paid for by scholarships,
GI Bill, or otherwise excludable from gross income).
- There is no double-dipping on deductions (i.e., if a different deduction
is allowed for the expenses, they cannot be used to license the tax credits).
- There is a lifetime limit of $12,000.
- Graduate students are limited to the first 2 years of graduate education.
(i.e., cannot have completed two years of graduate education before the start
of the tax year). There is no similar limitation for undergraduate education.
Income phaseouts:
- prorata from $100,000 to $160,000 (joint return)
- prorata from $50,000 to $80,000 (single)
- These phaseouts are adjusted annually for inflation and rounded to the next
lowest multiple of $1,000. There is no credit for married filing separate
returns.
- It is capped at higher of regular tax and alternative minimum tax minus
other credits (except for adoption credit and foreign tax credits). However,
it is also partially refundable. 50% of the amount by which the tax credit
exceeds the tax liability is allowed as a refundable tax credit.
- The student must be enrolled at least half-time in a Title IV institution.
- It will be effective for expenses paid on or after January 1, 2008 for education
that begins on or after that date.
It thus has the following advantages over current law:
- The new law would unify the Hope Scholarship, Lifetime Learning Tax Credit,
and Tuition & Fees Deduction into a single tax credit that is simpler
and easier to understand.
- The new tax credit is refundable.
- The new tax credit may be used for any education expense included in cost
of attendance, not just tuition.
- Represents an increase in the maximum annual per-student credit to $3,000
as compared with the $1,650 Hope and $2,000 Lifetime tax credits and $4,000
Tuition & Fees deduction.
- Income phaseouts are more generous than those for the Hope and Lifetime
Learning tax credits, but start lower than those for the Tuition & Fees
deduction (same endpoint).
There are only limited disadvantages over current law:
- More limited credit.
- The new law will institute a lifetime limit on total credit at $12,000.
- Graduate students are limited to first two years of graduate education.
Previously there was no limit.
However, these limits exceed the maximum amount received by most students
under the existing law, so the disadvantage is more theoretical than practical.
Students with expenses less than $3,500 would have qualified for more under
the Hope Scholarship. But students with more than $3,500 in expenses will qualify
for a greater credit under the new law, and the new credit is available for
the entire undergraduate education, not just the first two years.
|
