# Presentation: 261434

## <date/time>

## Overview

- Statutory Definitions:
- 	- Income
- Adjusted Gross Income
- Untaxed income and benefits
- Exclusions
-  	- Other Financial Assistance
- Earnings from Work
- Internal Revenue Code

## Before TRA 1997

- Qualified Scholarships
- Exclusions for Series EE US Savings Bonds
- Deduction for Education Expenses
- Income Exclusion for Employer-provided Assistance
- Student Loan Forgiveness
- Qualified State Tuition Programs

## Policy Development

- HOPE Scholarship
- 		- $1,500 Refundable Tax Credit
- 		- Enrolled at Least Half-time
- 		- First Two Years of College
- 		- Remain Drug-free
- 		- Maintain a “B” Average
- Tax Deduction
- 	- First $5,000 of Expenses ($10,000 in 2003)
- 	- Any Postsecondary Education

## Policy Development (cont’d)

## Policy Development (cont’d)

- HOPE Tax Credit
- 		- $1,500 Tax Credit for Educational Expenses (100% of 	  First $1,000, 50% of Second $1,000)
- Lifetime Learning Tax Credit
- 		- 20% of the First $5,000 ($10,000 in 2003)
- Federal Pell Grants
- 		- Increase Maximum award by $300
- 		- Expand Eligibility for Independent Students
- Part F Need Analysis

## Economic Growth & Tax Relief Reconciliation Act of 2001

**Deduction for Educational Expenses**
- 		- “Above the line”
- 		- Income limited
- 		- Annual maximum – $3,000/$4,000/$2,000
**Student Loan Interest Deduction**
- 		- Eliminates 60-month rule
- 		- Higher income phase-outs
- 		- Any interest paid
**Employer-Provided Educational Assistance**
- 		- Graduate/professional education
- 		- Permanent exclusion

## Economic Growth & Tax Relief Reconciliation Act of 2001 (cont’d)

- Marriage Penalty Relief
- 		- Lower marginal rates
- 		- Earned Income Tax Credit
- HOPE/Lifetime Learning Tax Credit
- 		- Coordinate with other tax benefits
- Education IRAs
- 		- $2,000 annual contribution limit
- 		- Contributions from employers/others
- 		- K-12 educational expenses
- 		- Higher income phase-outs
- 		- Coordinate other savings plans benefits

## Economic Growth & Tax Relief Reconciliation Act of 2001 (cont’d)

- Qualified Tuition Programs – Section 529
- 		- Tax-free distributions
- 		- Pre-paid plans developed by educational 		   institutions
- 		- Expanded eligible expenses
- 		- Increased flexibility
- 		- Compatible with HOPE/Lifetime Learning tax 	   credits

## General Rules

- No financial aid can be included in the calculation of the EFC.  However, whether it is taxed or not does not affect whether it is treated as a resource or EFA
- If an award is considered employment according to federal or state laws or regulations, it must be treated as employment for purposes of determining eligibility for Title IV aid

## Real Life

** **Tax Credit Beneficiaries Are “Held Harmless”
- 		- Federal Need Analysis Excludes Amount(s) From the 	  Calculation of “Total Income”
- Reported on 2002-2003 FAFSA “Worksheet C”
- Amount(s) Not Included as “Untaxed Income and Benefits”
- 		- Excludes as a Resource/Estimated Financial Assistance

## Real Life (cont’d)

- Work:  Income or Other Financial Assistance?
- 		- Need-based employment
- 		- Non need-based employment
- 		- An educational benefit that is contingent upon 		  enrollment (except non need-based employment)
- 		- Fellowships and assistantships
- 		- Scholarships with work/service component

## Clarification:

**Fellowships & Assistantships**

- Award (or portion of award) that is treated as employment and **not** based upon need is:
**not** considered a resource or EFA;
- treated as income just like any other employment earnings of the student
- that income should be included in the AGI on the student’s next financial aid application for inclusion in the calculation of the EFC

## Clarification:

**Fellowships & Assistantships**
**(cont’d)**

- Award (or portion of award) that is treated as employment and **is **based upon need:
**is **considered a resource or EFA;
- if included in AGI, then list on Worksheet C as exclusion to income for calculation of the EFC

## Clarification:

**Fellowships & Assistantships**
**(cont’d)**

- Award (or portion of award) that is not employment (regardless of whether it was based on need):
**is **considered a resource or EFA;
- if included in AGI, then list on Worksheet C as exclusion to income for calculation of the EFC

## Special Note

- 2002-2003 FAFSA Worksheet C is not clear regarding fellowship and assistantship amounts that were non need-based employment. Those should not be included on the worksheet as exclusion to income
- Such amounts that were correctly not treated as resources and EFA in the prior year need to remain as income that will be part of the 2002-2003 EFC calculation. As such, they should not be included in Worksheet C as exclusions from income.
- Schools may elect to review line items #46 and #80 (ISIR fields #51 and #85) to ensure correct information is reported. Specifically, exclusions in those items may mistakenly include earnings not treated as resources and EFA in the prior year.

## Additional Information

- www.house.gov/rules/1836_sum.pdf
-   Summary of the *Economic Growth and Tax Relief Reconciliation Act of 2001*
- www.irs.gov/forms_pubs/pubs.html
-   IRS Publication 520, *Scholarships and Fellowships*
-   IRS Publication 590, *Individual Retirement Arrangements (IRAs)*
-   IRS Publication 970*, Tax Benefits for Higher Education*

## Contact Information

- Dan.Madzelan@ed.gov
- Anthony.Jones@ed.gov