How the Consolidated Appropriations Act Affects Education Funding

The Consolidated Appropriations Act (CAA), signed into law late last year, contains a multitude of provisions which may affect individuals. The CAA covers two important areas:

1. Student loans. The CARES Act temporarily halted collections on defaulted loans, suspended loan payments and reduced the interest rate to zero through September 30, 2020. Subsequent executive branch actions extended this relief through January 31, 2021.

In addition, employers can provide up to $5,250 annually toward employee student loan payments on a tax-free basis before January 1, 2021. The payment can be made to the employee or the lender. The CAA extends the exclusion through 2025. The longer term may make employers more willing to offer this benefit.

2. Tax credits. Qualified taxpayers generally can claim an education tax break with the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Previously, though, the two credits were subject to different income phaseout rules, with the AOTC available at a greater modified adjusted gross income than the LLC. In addition, before the new law, there was a “higher education expense deduction” for qualified tuition and related expenses that taxpayers could opt to claim instead of the credits.

The CAA adopts a single phaseout for both the AOTC and the LLC, effective for tax years beginning after December 31, 2020. The credits will phase out beginning at $80,000 for single filers and ending at $90,000. For joint filers, they will begin to phase out at $160,000 and disappear at $180,000. The new law also repeals the higher education expense deduction. Instead, taxpayers can claim the LLC credit.

Contact Us

The Consolidated Appropriations Act may affect you. It affects college education funding; specifically, student loans and tax credits. For more information about your tax picture, or if you have questions, don’t hesitate to contact Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com, or Denise Felber, Tax Partner, at dfelber@hogantaylor.com.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.