Potential Tax Bills and Your Strategy for the Cost of College
That's why I wanted to take a look at one of the lesser known areas that could be affected by potential tax code changes: paying for college. The changes being considered for the tax code, both in the House and Senate could affect people who are paying for college in six different ways. It's important to understand the possibilities, so that you can plan accordingly for whatever is coming our way.
1. Those Getting Free Tuition for Working at a College
When people work for a college or university, they often get free tuition as they continue their education. This can lead to more people with bachelor's, master's, and even doctorate level degrees. But the bill that is currently being discussed in the House would make this free tuition taxable income, which is not currently the case. Right now, the free tuition is also free of taxes. The Senate bill would keep the current credit that avoids this tax, helping people continue to receive truly free tuition. If the House bill passes, that would then cost people getting free tuition a great deal of money in additional tax they would have previously avoided.
2. Those Paying for Their Child's Tuition
The American Opportunity Tax Credit helps people pay for their children's tuition by giving them tax breaks. That often lets them afford more college without the need to take out loans. These breaks are good for four years of college or university. The House bill would give that another year at a lower rate to help people whose children may take longer to complete school or who work toward advanced degrees, while the Senate bill would not change the credit if it is the one that passes in its current form.
3. Those Who Have Employers Giving Them Tuition Assistance
Right now, employees can get help from their employers to pay for college, and around half of all employers participate in this program to help their employees continue to succeed and grow. While the Senate bill would continue this help and the tax breaks that come along with it, the House bill would repeal this. People could still get help from their employers to pay for their tuition, but they would not be able to take any of the tuition assistance they received as a credit on their taxes.
4. Those Paying Off Their Student Loans
People currently paying back their student loans would see the student loan interest deduction repealed if the House bill passes in its present form. The Senate bill would keep the deduction the same, so there would be no effect on taxes for those repaying their loans. Right now, hundreds of thousands of people have student loans that they are repaying, and the break on their taxes can help them significantly.
5. Those Attending College Longer Than Five Years
The House bill would take away the Lifetime Opportunity Credit, while the Senate would keep it in place the way it is currently. For people who go to college longer than five years, this credit can help them stay in school and continue to afford their tuition. Some people do take longer to complete their education, and for them this credit is very important so they can pay tuition for longer than five years.
6. Those Getting Student Loan Debt Forgiveness Due to Disability
If a person has been deemed permanently disabled, the outstanding balance on federal student loans is forgiven. The forgiven amount is then treated as taxable income. Both the Senate and the House bills would exclude from taxes student loan forgiveness in disability and death cases. This could be a benefit for disabled people, and help ensure that they will not have to pay back student loan debt they can no longer afford.
There is a lot to consider when it comes to tax changes and the implications of those changes, and it's important to view them through a wide lens to understand how they can affect each portion of your financial lives. Keep a close eye on the end of the year tax discussions, as the impact will likely be even wider than you've thought to consider.
This content created by Rick Durkee in conjunction with Fusion Capital Management.
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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by radical promoting and their editorial staff based on the original articles written by jeff cutter in the falmouth enterprise. This article has been rewritten for Rick Durkeeand the readers of Rick's Weekly. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.