Education Tax Credits

Education Tax Credits Lessons from the Field, Future Challenges, and Potential Links to EITC and Workforce Development By Vickie Choitz, FutureWorks/CAEL Annie E. Casey Foundation and the EITC Funders Network November 30, 2006 Purpose of Today’s Meeting  Share results of the project Engage in a dialogue Brainstorm potential next steps   Overview of Meeting      Overview of the Project Overview of Education Tax Credits Practitioner Perspective Policy Perspective Next Steps Research Project  Getting Serious About Lifelong Learning: Improving the Use and Value of the Hope and Lifetime Learning Tax Credits for Working Adults      FutureWorks’ research conducted in 2003 Funded by AECF Adults are unaware of credits Biggest beneficiaries = dependent students Working adult students benefited the least “Action Research” Project: Two Questions  Strategies and tools for improving and increasing filing of education credits by low-income filers? Education credits as a workforce development tool?  “Action Research” Project: Two Products  What Are They and How Do I Use Them?  A Workforce Development Triad: Federal Education Tax Credits, Community-Based Organizations, and Community Colleges Education Credits - Background      Taxpayer Relief Act of 1997 Hope Scholarship Credit and Lifetime Learning Tax Credit In 2001, 7.2 million filers received $5.2 billion in credits Today, closer to $6 billion ~5-6% of filers receive an education credit What is the Hope Scholarship Credit?      Tax credit of 100% of the first $1,100 and 50% of the next $1,100 of net tuition and required fees paid during tax year; maximum credit of $1,650 Limited to student’s first two years of PSE Must be enrolled at least half-time Must pursue recognized educational credential Can be claimed for unlimited # of qualified students in a family What is the Lifetime Learning Tax Credit?      Tax credit of 20% of the first $10,000 of net tuition and fees paid during tax year; maximum credit of $2,000 Can be claimed for any year of education Can be claimed for any enrollment intensity Can be claimed for any education, as long as taken at an accredited educational institution Credit is capped at $2,000 per return, no matter how many students enrolled in college For Both Credits      Eligible expenses: tuition and required fees only Non-refundable Phase-out begins at AGI $90,000 for joint and $45,000 for single tax payers No benefit for AGI $110,000 joint or $55,000 single tax payers The original intent of both credits was to support middle-income parents and working adults; not necessarily to support lowincome students, families, or workers Clarifying Our Terms    Dependent student: supported/claimed by parents; often attends school full-time Independent student: not supported/claimed by parents; enrollment intensity varies; indicated occupation was “student” on taxes Working adult student: independent student; enrollment varies; indicated something other than “student” as occupation Who Benefits? Hope Tax Credit (% of total $) Type of Student Dependent Tax filerStudent Working Adult Student TOTAL AVERAGE AGI < $30,000 AGI $30,000 – under $60,000 AGI $60,000 – under $100,000 TOTAL 5% 7% 19% 3% 22% 0% 46% 10% 22% 16% 4% 42% 34% 38% 26% 98%* Who Benefits? Lifetime Learning Tax Credit (% of total $) Type of Student Dependent Tax filerStudent Working Adult Student TOTAL AVERAGE AGI < $30,000 2% 12% 23% AGI $30,000 – under $60,000 12% 6% 22% AGI $60,000 – under $100,000 13% 1% 10% TOTAL 27% 19% 55% 37% 40% 24% 101%* Value of the Credits Mean Hope $ Claimed on behalf of dependent student $1,104 Mean LLTC $ $578 Claimed by independent student Claimed by working adult $935 $536 $881 $361 AECF National Tax Assistance (NTA) Sites NTA Campaign Average Filer Median adjusted gross income Reported having received public benefits Filing status $15,132 30% Single: 54% Head of household: 30% Married filing jointly: 15% 38 years Education Credit Claimants $23,297 13% Single: 60% Head of household: 22% Married filing jointly: 18% 29 years Age # dependents claimed 0: 60% 1: 21% 2: 14% 3+: <6% 28% Hispanic 4% Asian/Pacific Islander Earned Income Credit: 44% Child Tax Credit: 23% Child & Dependent Care Credit: 3% 0: 65% 1: 20% 2: 11% 3+: 4% 18% Hispanic 6% Asian/Pacific Islander Earned Income Credit: 21% Child Tax Credit: 21% Child & Dependent Care Credit: 5% Note: 70% did not claim either the Earned Income Credit or the Child Tax Credit Race/ethnicity (significant differences only) Claimed other benefits Opportunities for Low Income Families to Benefit     Hope: if can attend at least half-time, credit is a benefit LLTC: available for any enrollment intensity - do not have to attend at least half-time LLTC: can be used for credit or non-credit education (i.e., basic education or ESL) as long as at an accredited institution LLTC: can be used throughout lifetime Barriers to Low-Income Families Benefiting  Operational   Lack of Awareness Filing complexity Limited to tuition and required fees only Credit is calculated based on net tuition and required fees Lifetime Learning is a small credit Neither are refundable Received up to 18 months after pay tuition and fees  Policy      Other  Questions? Practitioner Perspective – Strategies and Tools  Raise Awareness among Clients EITC and Child Tax Credits  Carefully target Education Credits, i.e., CNM  Appendix A and B   Raise Awareness among Preparers Generally limited training on education credits  Appendix C  Center for Budget and Policy Priorities’ Outreach Kit  Students – You may be eligible for Education Tax Credits! Ask us about the Hope Credit and the Lifetime Learning Credit Help Your Tax Clients Claim An Education Tax Credit Information on the Hope and Lifetime Learning Tax Credits Intake questions to ask  Did you or anyone in your family attend college or vocational school in 2006? If so, please write the name of the school(s): ________________________________________ (and bring in the forms listed below)  Did you or anyone in your household receive student financial aid for this education? (bring in the forms listed below) Forms the client should bring to tax assistance session  1098-T Tuition Statement (filer should have received it from the school, college, or university)  A bill or receipt from the school, college, or university that shows how much the student paid in tuition and fees or paperwork showing how many credits the student took and the tuition and fees for each credit. **This information may be on the 1098-T, but often is not and may not be correct.**  Financial aid statement from the school, college, or university showing the student’s estimated cost of attendance for tuition and fees and how much financial aid the student received. Forms the volunteer tax preparer should complete  IRS Form 1040 or 1040A (education tax credits found in the “Tax and Credits” section). Note: filer cannot use the 1040EZ to claim an education tax credit.  IRS Form 8863: Education Credits (Hope and Lifetime Learning Credits) Publications to find more information  Instructions for forms 1040 and 1040A, specifically sections on the education tax credits  IRS Publication 970: Tax Benefits for Education, specifically sections 2 and 3 Tips to keep in mind  Claim the Hope Credit if: oStudent attended college at least half-time (usually 6 credit hours or more, but specifically defined by the school or college) in a program leading to an undergraduate degree, certificate, or other recognized educational credential; and oStudent was in the first two years of the program (usually freshman or sophomore); and oStudent has not claimed the Hope credit in any two earlier tax years (or had it claimed on his or her behalf); and oStudent was free of any federal or state felony conviction for possessing or distributing a controlled substance as of last year.  Claim the Lifetime Learning Tax Credit if: oStudent attended college for any number of credit hours; and oStudent does not qualify for a Hope Credit. oNon-credit education counts as long as it is at an eligible institution and is taken to improve job skills; see table below. Ask the Right Questions    1098-T does not always work Intake forms and procedures are key Appendices D and E File Correctly for the Credits  Three key questions Eligible student  Eligible institution  Qualified expenses   Guide in Appendix G Question 2: Education Credits as Workforce Development Tool Tax Assistance (CBOs) Workforce Development (CBOs) Postsecondary Education (Community Colleges) CBOs and Community Colleges: What Makes Partnership Work?          Support of top leaders Resources to benefit all parties in a real way Long-term plan for partnership sustainability Clearly defined roles and responsibilities Communication Flexibility Outcomes Innovative and comprehensive programming An outside catalyst to jumpstart partnership Case Studies  Instituto del Progreso Latino    Workforce development CBO Strong partnership with community colleges Partner with CEP Tax Counseling Project Nonprofit intermediary Tax assistance, asset development, workforce development/postsecondary education, public policy Postsecondary educational institution Numerous partnerships  comprehensive  Southern Good Faith Fund    Central New Mexico Community College   Guest Responders  Kevin Jordan, Our Money Place, Bon Secours Foundation Robin Brule, Central New Mexico Community College  Policy Perspective  Policy Barriers to tuition and required fees only  Credit is calculated based on net tuition and required fees  Lifetime Learning is a small credit  Neither are refundable  Limited Policy Recommendations     Expand the definition of “qualified expenses” for both credits Increase the % of qualified educational expenses under Lifetime Learning Credit from 20% to 50% and cap at $2,000 Make both credits refundable ? Make Lifetime Learning per student not per return? Guest Responders  Mary Dupont, Nehemiah Gateway CDC and National Community Tax Coalition Andy Van Kleunen, The Workforce Alliance  Contact Information Vickie Choitz LiLA State Policy Director Council for Adult and Experiential Learning (CAEL) vchoitz@cael.org 617-501-5876