How the Fiscal Cliff Deal Affects Teachers

I originally wrote this article for the Iowa World Language Association’s blog. IWLA is a statewide organization for teachers of foreign languages from the kindergarten level up through the college level.

My wife, who is a professor of Spanish at Simpson College, is currently the president of IWLA. I’ve been asked to blog about various tax issues for teachers and college professors. My first post is about the fiscal cliff deal. More posts about other topics will be coming in the weeks ahead.

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(originally published January 5, 2013, on the Iowa World Language Association blog)

Congress passed a “fiscal cliff” bill on January 1. Here are some of the key provisions of interest to educators:

$250 “Above the Line” Deduction for Classroom Expenses
The bill extends, through December 31, 2013, the deduction for classroom expenses of K-12 teachers and teacher’s assistants. This deduction can be taken even if an educator claims the standard deduction.

Tuition and Fees Deduction
The deduction of up to $4,000 of qualifying tuition and fees for college expenses has been extended through December 31, 2013.

Student Loan Interest Deduction
The allowance of a deduction of up to $2,500 of student loan interest has finally been made a permanent part of the tax code.

American Opportunity Credit
The American Opportunity Credit (formerly known as the HOPE Credit) has been extended through 2017. This credit is available to students in their first 4 years of undergraduate studies.

Employer-Provided Educational Assistence
The bill makes permanent the ability of your employer to pay up to $5,250 of tuition, tax-free, on your behalf (for example, if you are pursuing a masters degree and your employer helps pay your tuition).

Other Things to Know About the Fiscal Cliff Bill
Here are some general-purpose items about the fiscal cliff bill of interest to anyone:

  • The “Bush Tax Cuts” are made permanent, except for a new tax bracket of 39.6% created for taxpayers with income above $400,000 (if single) or $450,000 (if married). The top rate under the Bush Tax Cuts had been 35%.
  • The capital gains rate of 0% for people in the 10% and 15% tax brackets has been made a permanent part of the tax code. The capital gains rate of 15% for people in the 25%-35% tax brackets has also been made permanent. A new capital gains rate of 20% has been created, but will only apply to people in the 39.6% bracket.
  • The child tax credit is permanently set at $1,000 per child (it had been set to drop to $500/child in 2013).
  • The credits available for adoptions and for daycare expenses have been made permanent.
  • The Earned Income Credit remains expanded through 2017, allowing more taxpayers to qualify for this credit.

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”

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