Submitted by Annette Nellen on May 13, 2008 - 12:20pm.
The various education tax breaks in the federal tax law are a good examples of how we can make taxes so complicated by trying to solve almost all of our problems within the tax system. IRS Publication 970 on education tax breaks lists 12 education tax breaks, one of which expired at the end of 2007. That publication is 80 pages long! And it doesn't list some rules we might not think of as education tax breaks, but they are, such as getting a dependency exemption on a child under age 24 if they are a full-time student. Some of these rules can't be used in combination with others, definitions vary and some phase out as one's income rises. The GAO report discussed at the May 1 hearing noted that for 2005, of the roughly 2.1 individuals eligible for an education tax break, almost one out of five failed to claim such a break. About another 10% failed to claim the maximum benefit they were likely entitled to. About half of these returns were completed by paid tax return preparers. Also, some tax breaks for education don't fit well within the tax law because they are helping to subsidize current education. But unless someone adjusted their wage withholding, the benefit comes after filing a tax return, not just before the start of the fall semester when needed. Benefits for current education can likely be delivered more effectively outside of the tax law - through scholarships and grants from the government. Thanks for the entry on this important topic.
Complexity out of hand
The various education tax breaks in the federal tax law are a good examples of how we can make taxes so complicated by trying to solve almost all of our problems within the tax system. IRS Publication 970 on education tax breaks lists 12 education tax breaks, one of which expired at the end of 2007. That publication is 80 pages long! And it doesn't list some rules we might not think of as education tax breaks, but they are, such as getting a dependency exemption on a child under age 24 if they are a full-time student. Some of these rules can't be used in combination with others, definitions vary and some phase out as one's income rises. The GAO report discussed at the May 1 hearing noted that for 2005, of the roughly 2.1 individuals eligible for an education tax break, almost one out of five failed to claim such a break. About another 10% failed to claim the maximum benefit they were likely entitled to. About half of these returns were completed by paid tax return preparers. Also, some tax breaks for education don't fit well within the tax law because they are helping to subsidize current education. But unless someone adjusted their wage withholding, the benefit comes after filing a tax return, not just before the start of the fall semester when needed. Benefits for current education can likely be delivered more effectively outside of the tax law - through scholarships and grants from the government. Thanks for the entry on this important topic.