How The Gop Tax Bill Impacts University Students

The GOP tax bill, passed in 2017, included a $1.5 trillion corporate tax cut and eliminated many individual tax breaks, impacting students, parents, and universities. The bill proposed to increase taxes for graduate students by roughly 400%, as tuition waivers would be taxed as income. This change could have financially devastated graduate students, with some even predicting they would have to drop out of their programs as a result. The bill also repealed the student loan interest deduction, which previously allowed borrowers to save up to $625 a year. These changes, along with others, led to concerns that the GOP tax bill would make higher education less affordable and accessible, particularly for students from low-income families.

Graduate students' tax increases

The GOP tax bill, which passed in the House of Representatives in 2017, would have seen graduate students' tuition waivers, received in exchange for working at the university, taxed as income. This would have increased taxes for graduate students by roughly 40%.

The bill would have affected the 145,000 graduate students who receive this kind of tuition reduction. For example, an MIT Ph.D. student, who relies on his graduate stipend and his wife's part-time work as a photographer to support their family, estimated that the bill would cut his take-home salary by nearly half. He stated that he would either have to take on more student loans or use all of his savings.

At the University of Illinois at Chicago, where the minimum salary for graduate employees is around $18,000, far below the estimated living wage of $26,128 for a single adult in Chicago, low-paid graduate workers would see their taxable incomes more than double without seeing any actual new income.

Graduate students at private universities, where tuition can range from $40,000 to $60,000 per year, would also have seen their taxes skyrocket. For example, the tax burden for MIT grad students would have increased by 240%.

The bill was met with criticism from graduate students and workers, who argued that it would make graduate school too expensive for all but the rich. Many graduate students made worst-case-scenario plans to drop out of their Ph.D. programs, alter their career paths, transfer schools, or take out more student loans if the bill became law.

However, it is important to note that the final version of the bill did not include this provision, and taxes on current college students remained largely unchanged.

Student loan tax credits

The GOP tax bill impacts student loan tax credits in several ways. Firstly, it repeals the student loan interest deduction, which allows borrowers with an income of up to $65,000, or $130,000 for married couples filing jointly, to reduce their taxable income by up to $2,500. This change will increase the financial burden on student loan borrowers, making repayment more difficult for millions of Americans.

The bill also affects the American Opportunity Tax Credit, which provides up to $2,500 in annual tax savings for students in the first four years of a qualified degree program. While the House plan would allow parents to claim this credit for a student's fifth year, it would also decrease the value of the benefit. Additionally, the bill eliminates the Lifetime Learning Credit, which offers up to $2,000 per year for qualified expenses for students beyond their first four years of college.

The GOP tax bill also impacts Coverdell Savings Accounts, which allow families to deposit up to $2,000 per beneficiary per year, tax-free, for qualified education expenses. The bill bans contributions to these accounts and converts them into 529 plans, which have different rules and restrictions.

It's important to note that the GOP tax bill did not include some provisions that would have increased taxes for current college students, such as proposals to increase taxes on graduate students receiving tuition waivers and those receiving tuition assistance from their employers. Overall, while the bill makes some changes to student loan tax credits, it does not significantly alter taxes for current college students.

Private college endowments

The 2017 GOP tax bill, known as the Tax Cuts and Jobs Act, included a provision to tax private college endowments. This provision imposed a 1.4% tax on the investment income of private college endowments worth more than $100,000 per student. While this may not seem like a large amount, it is important to note that the threshold is not adjusted for inflation, so the effective tax rate will increase over time.

This tax targets the investment income of the country's wealthiest private colleges, which have come under criticism for increasing tuition fees while holding substantial endowments. The tax is expected to cost affected colleges hundreds of thousands of dollars each year and will likely lead to shifts in investment strategies to reduce tax exposure.

The impact of this tax on colleges and students is significant. Colleges have argued that the tax could lead to cuts in student scholarships, education programs, and threats to the financial security of schools. In addition, the tax may hinder the broader community impact of colleges, as endowment funds are often used to support local communities.

The endowment tax is controversial, with critics arguing that it could threaten financial aid for low-income students, stifle social mobility, and obstruct life-saving research. There have been bipartisan efforts in Congress to repeal the tax, and lobbyists representing wealthy private universities continue to advocate for its repeal. However, the tax has survived in the final version of the bill, indicating that it has some support among lawmakers.

The endowment tax is expected to affect a small number of colleges, with only 23 institutions holding approximately 50% of endowment assets. These institutions are often the most selective and have lower enrolment rates of low-income students. While the tax may not significantly lower prices at these institutions, it is important to consider the potential impact on financial aid and the broader community benefits that endowments provide.

Teachers' school supply tax credit

Teachers School Supply Tax Credit

Teachers and educators play a vital role in society, and their contributions are recognised through tax credits. In 2016, the Canadian government introduced a refundable tax credit for teachers and early childhood educators, allowing them to claim a percentage of their school supply purchases each year. This credit is known as the Eligible Educator School Supply Tax Credit.

Who is eligible?

To be eligible for this tax credit, individuals must meet specific criteria:

• Be employed as a teacher or early childhood educator at an elementary or secondary school, or a regulated childcare facility.
• Hold a valid teaching certificate or a recognised certificate/diploma in early childhood education for the province or territory where they work.
• Have purchased eligible supplies during the tax year.

Eligible supplies must meet the following conditions:

• Used in a school or regulated childcare facility for teaching or student learning.
• Not reimbursed or covered by any allowances or other forms of assistance (unless included in the individual's income and non-deductible).
• Not deducted or used to calculate deductions from anyone's income for any tax year.

Examples of eligible supplies include:

• Science experiment materials, such as potting soil/seeds or volcano-building supplies (vinegar/baking soda).
• Writing materials: pens, pencils, sharpeners, etc.
• Books used in the classroom.
• Educational support software.
• Calculators, including graphing calculators.
• Containers like plastic or banker boxes.
• External data storage devices.
• Webcams, microphones, and headphones.
• Wireless pointer devices.
• Educational toys.
• Video streaming devices.
• Multimedia projectors.

How to claim the credit:

When filing taxes, individuals can follow these steps:

• On the PREPARE tab of the tax software, click the OTHER icon.
• Click the SPECIAL SITUATIONS link and answer "Yes" to the question, "Are you a teacher or early childhood educator who bought teaching supplies?".
• Enter the amount paid for eligible supply expenses for the tax year in the designated field.

It's important to note that the Canada Revenue Agency (CRA) may request certification from the educator's employer to validate the expenses. Therefore, it is recommended to request and retain this certification before filing the tax return.

Impact of the GOP Tax Bill on University Students:

The GOP tax bill passed in 2017 included significant changes that affected university students, parents, and educational institutions. While the focus of this answer is on the Teachers School Supply Tax Credit, it is worth noting that the bill had broader implications for the education sector.

Savings for college

The GOP tax bill will impact how Americans save for college. Firstly, the bill will ban contributions to Coverdell Savings Accounts, which allowed families to deposit $2,000 per beneficiary, per year, to be used for qualifying education expenses. Families will now need to open 529 plans instead.

The bill also makes changes to 529 plans. Previously, these accounts could only be used to fund college expenses, but under the new bill, funds from 529 accounts can be withdrawn tax-free to be used for K-12 private school tuition and college expenses. The bill allows all families, regardless of income level, to deposit $10,000 per beneficiary, per year, into these accounts. Additionally, unborn children can now be named as beneficiaries of 529 plans.

The House bill would also eliminate a tax deduction of up to $2,500 on student loan interest. This is a concern for graduate students who are still paying off their undergraduate loans.

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