Congress introduces bill to consolidate tax credits for higher education

Friday, November 1, 2013

A pair of lawmakers have introduced legislation to simplify the Tax Code to enable families to more easily afford the cost of higher education.

Reps. Diane Black, R-Tenn., and Danny K. Davis, D-Ill., introduced the Student and Family Tax Simplification Act on Wednesday. The legislation is designed to make it easier and simpler for families to afford the costs of higher education by consolidating four separate tax provisions into a single education tax benefit.

The proposed legislation would consolidate the Hope Credit, the American Opportunity Tax Credit, the Lifetime Learning Credit, and the tuition deduction into a single, but more robust American Opportunity Tax Credit. The new AOTC would be permanent and partially refundable and would provide a 100-percent tax credit for the first $2,000 of eligible higher education expenses and a 25-percent tax credit for the next $2,000 of such expenses, for a maximum credit of $2,500.

In addition, the first $1,500 of the credit would be refundable, meaning that families could receive the benefit regardless of whether or not they have federal income tax liability. The credit could be used to offset expenses for tuition, fees and course materials. It would be available for up to four years of post-secondary education at qualifying four-year universities, community colleges, and trade and vocational schools. The proposed AOTC would begin to phase out for families with incomes between $86,000 and $126,000 (half those amounts for single individuals), ensuring that the credit provides the greatest benefit and value to low- and middle-income families.

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