Last month, I discussed how a new tax proposal by House Ways and Means Committee Chairman David Camp (R-Mich.) would impact small business owners and tax payers (see blog piece). This month, I want to continue that conversation by showing how the proposal would impact veterinary students.
Currently, families with college students benefit from three programs: the American Opportunity Tax Credit (AOTC), the Lifetime Learning Credit (LLC) or a tuition and fees deduction. Congressman Camp’s tax reform proposal would consolidate the three separate tax benefits into a single benefit. This benefit would be for students enrolled at least half-time in undergraduate or certificate programs.
Camp’s proposal would make the AOTC permanent, eliminate the LLC, and allow the tuition and fees deduction to die. In addition, the plan would eliminate a number of other education-related exclusions and deductions, such as the:
- deduction for interest on education loans;
- exclusion for employer-provided education assistance;
- exclusion for discharge of student loan indebtedness;
- exclusion for tuition reductions by educational institutions to their employees; and the
- education expense exception to the penalty for early withdrawals from retirement accounts.
According to the Tax Policy Center of the Urban Institute and Brookings Institution, the AOTC currently allows a 100 percent credit against the first $2,000 of educational expenses and 25 percent of the next $2,000 to a maximum credit of $2,500. Forty percent of the credit up to $1,000 is refundable. Under Camp’s proposal, the AOTC would be modified to make the first $1,500 of tax credits refundable and lower the income level at which the credit starts to phase out from $160,000 to $86,000 for married filers and from $80,000 to $43,000 for non-married filers. The credit would be indexed for inflation starting in 2018.
At this point, tax reform is in the discussion phase and we do not anticipate it moving forward in an election year. However, since pre-veterinary and veterinary students will be impacted by these changes, they should continue to closely monitor the tax code for changes to higher education affordability and/or discuss them with their tax advisors.