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Jan 042013
 January 4, 2013  Posted by  Expired

Unless you’ve been completely off the grid, you couldn’t miss the news about the New Year’s Day tax deal that Congress finally passed to help avoid the fiscal cliff — for now. Called the American Tax Relief Act of 2012, it takes the pressure off of many Americans who were worried that their tax-deductible expenses would be going the way of the dodo bird.

As the parent of a high school senior, I was particularly interested to find out how the tax act affects tax credits and deductions for 2012 when it comes to education-related expenses. Well, it turns out nothing has changed — though two tax breaks that expired at the end of 2011 were brought back for 2012. Which is good. But for my family, that’s still bad.

Why? Because even though we are not rich, we earn too much for these tax credits.

Each of the two remaining tax breaks for college education has income limits attached. (I referenced them in my Marketplace radio commentary last year.) Here is how they work out in terms of tax deductions:

  • The American Opportunity Credit remains in place. It is a tax credit that you can claim, for up to $2,500, for college-related expenses. It has been extended through 2017, which means it could easily cover my daughter’s four years of college. However, here’s the rub. If your household earns more than $180,000, you earn too much to qualify for this credit.
  • The Higher Education Tuition Deduction also allows you to write off college expenses — namely, college tuition — but like the American Opportunity Credit, only those with certain household incomes meet the requirements. That is, you have to earn under $65,000 filing as a single or $130,000 filing jointly to qualify for this tax deduction. Even if you qualify, you can deduct only $4,000 in tuition. That’s one $4,000 deduction, even if you have two kids in college. There’s another level to the Higher Education Tuition Deduction if you earn a bit more. For those earning $80,000 as a single or $160,000 filing jointly, you can deduct up to $2,000. Again, that’s one time only, regardless of how many kids you have in college or how much you pay for college. Though this deduction had expired last year, the American Tax Relief Act of 2012 has brought it back to life for 2012 tax returns, plus those tax returns you will file for 2013.
  • There is another education tax deduction that remains that may not help parents like me, but it does provide some relief to educators: the Educator Expense Deduction lets teachers write off $250 worth of classroom supplies. That, too, expired in 2011, but now has been extended to 2012 and 2013.

 I know it’s hard to feel sorry for someone who earns too much to qualify for these college-related deductions. But if Congress has identified that those earning more than $400,000 (filing as a single) or $450,000 (filing jointly) should pay more taxes, shouldn’t that automatically make it that any households earning less than these thresholds be able to take advantage of these deductions?

Leah Ingram

  3 Responses to “3 education tax breaks survive ‘fiscal cliff’ deal”

  1. Yay! The first one is a credit, not a tax deduction, correct?

  2. No, I believe it is a deduction for which you have to submit receipts, thus the “up to $2,500” mention. I’d ask your tax professional for a better explanation in case I have confused you further!

  3. Yes, but I’m pretty sure it’s a tax credit, not a deduction. Meaning it’s subtracted from your tax bill, not your taxable income. Do I have that wrong? (I hope not!)

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