Education Funding Recap
August 10, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
The world of higher education has received some attention in Washington this year. I’ve done several posts on the topic, but wanted to offer this summary of both what’s passed and what’s proposed in the budget for FY 2010.
The American Recovery and Reinvestment Act of 2009 (ARRA) was signed into law by President Obama in February. This legislation, along with President Obama’s proposed budget for FY 2010, contains several provisions related to higher education.
Hope credit
The Hope credit is a tax credit for college tuition and related expenses. ARRA changed the Hope credit significantly. For 2009 and 2010, the Hope credit is renamed the American Opportunity tax credit and can be worth $2,500 per student per year, up from $1,800. (President Obama’s FY 2010 budget blueprint proposes making the credit permanent.) In addition, the credit now applies to the first four years of a student’s post-secondary education, provided he or she attends at least half-time (previously, the credit applied only to the first two years of college). And the income limits for qualifying have been increased:
- A full credit is available to single filers with a modified adjusted gross income (MAGI) below $80,000 (previously $50,000) and joint filers with a MAGI below $160,000 (previously $100,000)
- A partial credit is available to single filers with a MAGI between $80,000 and $90,000 (previously $50,000 and $60,000) and joint filers with a MAGI between $160,000 and $180,000 (previously $100,000 and $120,000)
Other points to note about the new credit:
- The credit may be claimed against an individual’s alternative minimum tax liability
- Up to 40% of an individual’s allowable credit may be refundable
- For purposes of the credit, the definition of “qualified tuition and related expenses” is expanded to include course materials
- By increasing both the amount of the credit and the income limits to qualify for it, and by expanding the availability of the credit to all four years of college, the federal government has put the focus on helping traditional college students pay for college. (Congress did not increase the amount of the Lifetime Learning credit, which is geared more toward occasional courses taken by students who are enrolled in school less than full-time.)
Qualified expenses and 529 plans
ARRA has expanded the definition of “qualified higher education expenses” for 529 plans to include expenses paid or incurred in 2009 or 2010 for computer technology, equipment, and Internet access, provided they are used by the 529 plan beneficiary and the beneficiary’s family during any of the years the beneficiary is enrolled at an eligible educational institution. This means you can take a tax-free withdrawal from your 529 plan to pay for these items. (Previously, a computer had to be required by the college in order to be considered a qualified education expense.) This carve out for computer-related expenses is similar to the existing provision for K-12 computer expenses currently allowed by Coverdell education savings accounts.
Pell Grants
ARRA increased the maximum Pell Grant to $5,350 for 2009/2010 and to $5,550 for 2010/2011. President Obama’s FY 2010 budget proposes making the Pell Grant program a mandatory spending program with automatic increases tied to the Consumer Price Index.
Federal Family Education Loan program
President Obama’s 2010 proposed budget seeks to eliminate the Federal Family Education Loan program in 2010. If it passes, all student loans would be made through the federal government’s Direct Loan program.
Financial aid
According to www.whitehouse.gov, President Obama wants to simplify the federal financial aid application process by eliminating the current FAFSA application and allowing families to apply by simply checking a box on their tax form, authorizing their tax information to be used. Stay tuned to see whether this major time-saving objective will happen in 2010.
The Stimulus Act and You
February 18, 2009 by Jean Keener, CRPC, CFDP · Leave a Comment
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009 (the 2009 “Stimulus Act”). The legislation carries a projected cost of $787 billion, and contains hundreds of provisions. Key provisions that may be relevant to you include:
- New Making Work Pay Tax Credit–The Act establishes a new refundable income tax credit for 2009 and 2010 equal to 6.2% of earned income, up to $400 ($800 in the case of a married couple filing jointly); withholding schedules will be adjusted to increase current take-home pay to reflect the credit. The credit is phased out for individuals with modified adjusted gross income exceeding $75,000 ($150,000 for married couples filing jointly).
- Earned Income Tax Credit–The earned income tax credit percentage for families with three or more qualifying children increases from 40% to 45% for 2009 and 2010. The income thresholds at which the credit phases out for married couples filing joint returns also increases for 2009 and 2010.
- Child Tax Credit–For 2009 and 2010, the refundable portion of the child tax credit increases to 15% of earned income in excess of $3,000.
- Hope Credit–For 2009 and 2010, the Hope credit is renamed the American Opportunity Tax Credit, the annual limit per eligible student increases to $2,500 and the credit is now available for the first four years of post-secondary education. Up to 40% of the credit is refundable. The definition of qualified expenses now includes course materials, and the credit can be claimed against alternative minimum tax (AMT) liability. The income levels at which the credit phases out also increase significantly.
- Tax Credit for First-Time Homebuyers–The existing first-time homebuyer credit now applies to qualifying home purchases made before December 1, 2009, and the maximum credit amount is now $8,000 ($4,000 for married individuals filing separately). In addition, the recapture rules (requiring that the credit be paid back) are waived for qualifying homes purchased after December 31, 2008, and before December 1, 2009, provided that the home continues to be the taxpayer’s principal residence for 36 months.
- Deduction for Qualified Motor Vehicles–State sales tax and excise tax related to the purchase of a qualified motor vehicle after February 17, 2009 and before January 1, 2010 can be deducted as part of the deduction for state and local taxes paid on Form 1040, Schedule A, or as part of the standard deduction. The deduction is capped at the tax attributable to a maximum $49,500 purchase price, and is phased out for individuals with modified adjusted gross income exceeding $125,000 ($250,000 for married couples filing joint returns).
- Alternative Minimum Tax (AMT)–2008 temporary AMT provisions are extended to 2009; AMT exemption amounts are increased, and nonrefundable personal credits will continue to offset regular tax liability and alternative minimum tax liability.
| Filing Status | 2008 AMT Exemption Amount | 2009 AMT Exemption Amount |
| Unmarried | $46,200 | $46,700 |
| Married Filing Jointly | $69,950 | $70,950 |
| Married Filing Separately | $34,975 | $35,475 |
- Bonus Depreciation–The additional 50% first-year depreciation deduction applies for an extra year, through 2009 (through 2010 for certain longer-lived and transportation property).
- IRC Section 179 Expensing–The increased limits relating to IRC Section 179 expensing now apply through 2009. As in 2008, the maximum amount that a taxpayer may expense is $250,000 of the cost of qualifying property placed in service for the taxable year. This amount is reduced by the amount by which the cost of qualifying property placed in service during the taxable year exceeds $800,000.
- Net Operating Loss (NOL) Carrybacks–Eligible small businesses (small businesses with average gross receipts of $15 million or less) can elect to extend the existing two-year carryback period for 2008 NOLs to 3, 4, or 5 years.
- Unemployment Compensation–Up to $2,400 of unemployment compensation benefits received in 2009 are excluded from gross income for federal income tax purposes.
- Small Business Stock–The percentage exclusion for qualified small business stock sold by an individual increases from 50% (60% for certain empowerment zone businesses) to 75% for stock issued after February 17, 2009 and before January 1, 2011.
- Economic Recovery Payments–Individuals who are eligible for Social Security benefits, Railroad Retirement benefits, Veteran’s compensation or pension benefits, or Supplemental Security Income (SSI) benefits will generally receive a one-time Economic Recovery Payment of $250.
- COBRA–For involuntary terminations that occur on or after September 1, 2008 and before January 1, 2010, individuals who qualify will only need to pay 35% of COBRA premiums for a period of up to 9 months. The remaining 65% of COBRA premiums will be subsidized. For individuals with adjusted gross income exceeding $125,000 ($250,000 for married individuals filing a joint return), the subsidy must be paid back in part or in full.