Important Tax Law Changes Before Congress

Important Tax Law Changes Before Congress When Congress returns to Washington after the July 4th recess, a major item on its agenda will be the passage of legislation implementing the budget deal worked out between the President and Congress. There are two components to be considered: changes in program spending, and taxes. Attention is now focusing on the massive tax bill, the first of this size to be considered since 1981. In all tax bills, there are winners and losers, and this time is no different. Congress is considering several important changes that would alter the conduct of education, and related matters, at universities. In brief:

TUITION WAIVERS: Under the present system, graduate students receiving tuition waivers do not pay income tax on this benefit. The Senate-passed version of H.R. 2014 does not change this. The House-passed version would phase out this tax break: university teaching and research assistants would pay federal taxes on their tuition waivers (starting with taxes paid on 20% of the waiver’s value in 1998, rising incremently to 100% in 2002.) Since the House and Senate disagree on this provision (and many others), they will hold a conference to resolve the difference. There are varying reports on whether the House or Senate will yield.

TAX FREE TUITION AID FOR UNIVERSITY FACULTY AND STAFF MEMBERS AND THEIR FAMILIES: This provision is similar to that above -- in fact, some reports suggest that this benefit was the driving force behind the above change in the House-passed bill. Again, this aid would be taxable. The Senate bill is silent. Reports indicate that key Members of the House Ways and Means Committee are particularly firm on wanting to see this change in the tax law.

EMPLOYER-PAID TUITION: The House passed bill would restore through the end of this year the tax exemption for employer-paid educational assistance for undergraduate students only. The Senate bill would make this a permanent exemption for up to $5,250 per year of employer-paid tuition for both undergraduate and graduate students.

PENSION: The House bill contains a provision instituting a tax on TIAA-CREF’s contingency reserve fund build-up. It would not affect the tax-deferred status of an individual’s accumulation. The Senate bill is silent. Critics of the House bill charge this change would ultimately reduce benefits.

There are other provisions in these tax bills, and in the tax package being advanced by the White House that affect the way that students and their families pay for higher education.

All indications point to the House - Senate conference being long and difficult. Major battles are expected over tobacco taxes, family tax credits, capital gains, and corporate taxes, to name but a few. Winners in the final tax bill will be those who best communicate with their Members of Congress.