The Tax Bill and Potential Impacts on Graduate Education and our Universities

The “Tax Cuts and Jobs Act” was introduced last week in the House and is moving quickly through Congress. It contains several provisions that, if signed into law, would affect the AMS community. I will add something to this post when the Senate version comes out.

Speaker Paul Ryan has stated that he is confident the House will pass the bill by Thanksgiving. Let me give you a quick overview of what this bill means for students and institutes of higher education. At the end of this post there is more information about what you can do to take action, by contacting your Congressional delegation about the provisions affecting graduate students in mathematics.

Under current law, there are 15 different tax benefits relating to education that often overlap with one another. The Tax Cuts and Jobs Act would eliminate or consolidate a number of tax deductions meant to offset the costs of higher education.

Most of these provisions (described below) are found in the bill’s Title I, Subsection C , though Title V, subtitle B contains the 1.4% tax on certain schools. If you want a very good explanation of the bill, I suggest the section-by-section summary from the House Ways and Means Committee.

For starters, the three higher-education tax credits — the American Opportunity Tax Credit, Lifetime Learning Credit and Hope Scholarship Credit — would be folded into one credit. The bill

• eliminates the Lifetime Learning Credit, which provides a tax deduction of up to $2,000 for tuition, and
• eliminates the Hope Scholarship Credit.

In place of those two cuts, the bill extends the American Opportunity Tax Credit (AOTC) for one extra year, making it a tax break that students can take for up to five years. For the first four years, the AOTC lets you get up to $2,500 back if you spend up to $4,000 on tuition and fees—no change there—but for the fifth year, under the new tax plan, the size of the tax break would be halved, so it would be worth only $1,250.

The bill also:

• Eliminates a credit for student-loan interest. Currently, people with incomes below certain thresholds can deduct up to $2,500 of student loan interest each year. The tax bill would do away with this as of 2018.
• Eliminates a $5,250 corporate deduction for education-assistance plans. At the moment, when employers pay your tuition for continuing education, the amount they pay is not taxable income for you as long as it meets certain conditions and amounts to no more than $5,250 per year. If the tax bill passes as written, these tuition payments will count as taxable income starting in 2018.
• Eliminates new contributions to the tax-free Coverdell Savings Accounts; existing Coverdells would be rolled over into 529 plans.

The bill proposes new taxes on some private-college endowments and on compensation for the highest-paid employees at nonprofit organizations, including colleges and nonprofit academic hospitals. One example: private universities with at least 500 students and assets of more than $100,000 per student would face a new 1.4% excise tax on investment returns. Many universities are putting out statements about this.

The plan would also tax the tuition waivers that many graduate students receive when they work as teaching or research assistants. The Washington Post asserts that “streamlining the jumble of tax credits could increase revenue for the government by $17.3 billion over 10 years, according to the plan. That is likely because the new credit would squeeze graduate students, especially PhD candidates who spent far longer than five years in college.”

The AAU released a statement opposing the proposed excise tax on university endowment income; the APLU also issued a statement addressing the overall bill’s effects on higher education and stating their concern in particular about the “provisions in the legislation that would tax students on tuition reductions that colleges and universities provide, especially to graduate students who are teaching or performing pathbreaking research.”

What can you do?

You can talk to your university government relations office about this bill and how it will impact your university, and see what action — if any — your university is taking.

If you are concerned about the effect on graduate students, I suggest you take a look at “Graduate Students & The “Tax Cuts and Jobs Act”: What You Need to Know,” a resource guide put out on November 3 by the Student Advocates for Graduate Education (SAGE) Coalition. This guide explains the bill’s impacts for grad students and postdocs; it explains who, when and how to contact legislators; it gives a timeline for Congress votes on this bill; and it gives a script.