On December 20th, Congress approved a $1.5 trillion overhaul of the tax code—which is now on its way to the President’s desk for a signature. No Democrats in either the House or Senate supported the legislation.
Throughout the bill’s journey through the legislative process, tax provisions related to education and the economy were debated in both chambers of Congress. Below is the updated status of these provisions, including how they were incorporated into the final tax bill.
- Workforce Opportunity Tax Credit (WOTC) – While the House version of the tax bill proposed to eliminate WOTC, the final bill conserves this valuable credit used by millions of businesses per year. WOTC allows businesses to receive a tax credit for hiring individuals in need of additional training or other supports to improve employment outcomes—such as workers eligible for TANF and SNAP.
- Section 127 – This section of the current tax code allows employers to contribute up to $5,250 annually towards tuition assistance for their employees—without this contribution being counted as part of their taxable income. Businesses, especially those that are considered small and mid-sized, often use section 127 as a tool for recruiting new employees. This section of the tax code will remain in the new GOP tax bill.
- Lifetime Learning (LL) Credit – The final tax bill also preserves the LL credit, which provides a tax credit of up to $2,000 per taxpayer for education expenses. The original tax plan released in the House proposed to eliminate the LL credit and add a fifth year of eligibility to the American Opportunity Tax Credit (AOTC). Critics of this change argued that it would alienate nontraditional students—many of whom do not qualify for the AOTC.
- Student Loan Interest Deduction – Approximately 12.4 million borrowers per year make use of this tax provision, which allows for the deduction of up to $2,500 in student loan interest. The GOP tax overhaul upholds this deduction—a relief for those who rely on it to reduce their yearly tax bills.
Of Note: The new tax bill includes a 1.4 percent excise tax on endowment income for private colleges with assets valued at $500,000 per full-time student. Lawmakers have estimated this provisions will affect about 35 institutions. Many stakeholders have expressed concern that this new tax will add to costs and hinder the ability of these institutions to provide the highest quality education.
Although the tax bill has been sent to POTUS’s desk, White House officials have reported that the President may withhold his signature until Congress passes legislation to avoid the first Statutory PAYGO sequester. While there was speculation that Congress would not address the impending sequester until after the new year, the newly unveiled short-term spending bill—which will fund the government through January 19th—contains a PAYGO waiver.