Common Sense Middle Class Tax Relief Act of 1996

Summary: Common Sense Middle Class Tax Relief Act of 1996 - Amends the Internal Revenue Code to allow an individual a deduction for the amount of qualified higher education expenses paid by the individual. Limits the amount allowed to $10,000.  Provides for a limitation based on modified adjusted gross income and other limitations. 
Makes permanent the exclusion for employer-provided educational assistance programs.

SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

    (a) Short Title.--This Act may be cited as the ``Common Sense 
Middle Class Tax Relief Act of 1996''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is expressed in 
terms of an amendment to, or repeal of, a section or other provision, 
the reference shall be considered to be made to a section or other 
provision of the Internal Revenue Code of 1986.

SEC. 2. DEDUCTION FOR HIGHER EDUCATION EXPENSES.

    (a) Deduction Allowed.-- Part VII of subchapter B of chapter 1 
(relating to additional itemized deductions for individuals) is amended 
by redesignating section 220 as section 221 and by inserting after 
section 219 the following new section:

``SEC. 220. HIGHER EDUCATION TUITION AND FEES.

    ``(a) Allowance of Deduction.--In the case of an individual, there 
shall be allowed as a deduction the amount of qualified higher 
education expenses paid by the taxpayer during the taxable year.
    ``(b) Limitations.--
            ``(1) Dollar limitation.--
                    ``(A) In general.--The amount allowed as a 
                deduction under subsection (a) for any taxable year 
                shall not exceed $10,000.
                    ``(B) Phase-in.--In the case of taxable years 
                beginning in 1996, subparagraph (A) shall be applied by 
                substituting `$5,000' for `$10,000'.
            ``(2) Limitation based on modified adjusted gross income.--
                    ``(A) In general.--The amount allowed as a 
                deduction under subsection (a) (after application of 
                paragraph (1)) shall be reduced (but not below zero) by 
                the amount determined under subparagraph (B).
                    ``(B) Amount of reduction.--The amount determined 
                under this subparagraph equals the amount which bears 
                the same ratio to the deduction (determined without 
                regard to this paragraph) as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's modified 
                                adjusted gross income for such taxable 
                                year, over
                                    ``(II) $60,000 ($80,000 in the case 
                                of a joint return), bears to
                            ``(ii) $20,000.
                    ``(C) Modified adjusted gross income.--The term 
                `modified adjusted gross income' means the adjusted 
                gross income of the taxpayer for the taxable year 
                determined--
                            ``(i) without regard to this section and 
                        sections 911, 931, and 933, and
                            ``(ii) after the application of sections 
                        86, 135, 219 and 469.
                For purposes of sections 86, 135, 219, and 469, 
                adjusted gross income shall be determined without 
                regard to the deduction allowed under this section.
                    ``(D) Inflation adjustments.--
                            ``(i) In general.--In the case of a taxable 
                        year beginning after 1998, the $60,000 and 
                        $80,000 amounts described in subparagraph (B) 
                        shall each be increased by an amount equal to--
                                    ``(I) such dollar amounts, 
                                multiplied by
                                    ``(II) the cost-of-living 
                                adjustment determined under section 
                                1(f)(3) for the calendar year in which 
                                the taxable year begins, determined by 
                                substituting `calendar year 1997' for 
                                `calendar year 1992' in subparagraph 
                                (B) thereof.
                            ``(ii) Rounding.--If any amount as adjusted 
                        under clause (i) is not a multiple of $5,000, 
                        such amount shall be rounded to the next lowest 
                        multiple of $5,000.
    ``(c) Qualified Higher Education Expenses.--For purposes of this 
section--
            ``(1) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified higher 
                education expenses' means tuition and fees charged by 
                an educational institution and required for the 
                enrollment or attendance of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any dependent of the taxpayer with 
                        respect to whom the taxpayer is allowed a 
                        deduction under section 151,
                as an eligible student at an institution of higher 
                education.
                    ``(B) Exception for education involving sports, 
                etc.--Such term does not include expenses with respect 
                to any course or other education involving sports, 
                games, or hobbies, unless such expenses--
                            ``(i) are part of a degree program, or
                            ``(ii) are deductible under this chapter 
                        without regard to this section.
                    ``(C) Exception for nonacademic fees.--Such term 
                does not include any student activity fees, athletic 
                fees, insurance expenses, or other expenses unrelated 
                to a student's academic course of instruction.
                    ``(D) Eligible student.--For purposes of 
                subparagraph (A), the term `eligible student' means a 
                student who--
                            ``(i) meets the requirements of section 
                        484(a)(1) of the Higher Education Act of 1965 
                        (20 U.S.C. 1091(a)(1)), as in effect on the 
                        date of the enactment of this section, and
                            ``(ii)(I) is carrying at least one-half the 
                        normal full-time work load for the course of 
                        study the student is pursuing, as determined by 
                        the institution of higher education, or
                            ``(II) is enrolled in a course which 
                        enables the student to improve the student's 
                        job skills or to acquire new job skills.
                    ``(E) Identification requirement.--No deduction 
                shall be allowed under subsection (a) to a taxpayer 
                with respect to an eligible student unless the taxpayer 
                includes the name, age, and taxpayer identification 
                number of such eligible student on the return of tax 
                for the taxable year.
            ``(2) Institution of higher education.--The term 
        `institution of higher education' means an institution which--
                    ``(A) is described in section 481 of the Higher 
                Education Act of 1965 (20 U.S.C. 1088), as in effect on 
                the date of the enactment of this section, and
                    ``(B) is eligible to participate in programs under 
                title IV of such Act.
    ``(d) Special Rules.--
            ``(1) No double benefit.--
                    ``(A) In general.--No deduction shall be allowed 
                under subsection (a) for qualified higher education 
                expenses with respect to which a deduction is allowable 
                to the taxpayer under any other provision of this 
                chapter unless the taxpayer irrevocably waives his 
                right to the deduction of such expenses under such 
                other provision.
                    ``(B) Dependents.--No deduction shall be allowed 
                under subsection (a) to any individual with respect to 
                whom a deduction under section 151 is allowable to 
                another taxpayer for a taxable year beginning in the 
                calendar year in which such individual's taxable year 
                begins.
                    ``(C) Savings bond exclusion.--A deduction shall be 
                allowed under subsection (a) for qualified higher 
                education expenses only to the extent the amount of 
                such expenses exceeds the amount excludable under 
                section 135 for the taxable year.
            ``(2) Limitation on taxable year of deduction.--
                    ``(A) In general.--A deduction shall be allowed 
                under subsection (a) for any taxable year only to the 
                extent the qualified higher education expenses are in 
                connection with enrollment at an institution of higher 
                education during the taxable year.
                    ``(B) Certain prepayments allowed.--Subparagraph 
                (A) shall not apply to qualified higher education 
                expenses paid during a taxable year if such expenses 
                are in connection with an academic term beginning 
                during such taxable year or during the first 3 months 
                of the next taxable year.
            ``(3) Adjustment for certain scholarships and veterans' 
        benefits.--The amount of qualified higher education expenses 
        otherwise taken into account under subsection (a) with respect 
        to the education of an individual shall be reduced (before the 
        application of subsection (b)) by the sum of the amounts 
        received with respect to such individual for the taxable year 
        as--
                    ``(A) a qualified scholarship which under section 
                117 is not includable in gross income,
                    ``(B) an educational assistance allowance under 
                chapter 30, 31, 32, 34, or 35 of title 38, United 
                States Code, or
                    ``(C) a payment (other than a gift, bequest, 
                devise, or inheritance within the meaning of section 
                102(a)) for educational expenses, or attributable to 
                enrollment at an eligible educational institution, 
                which is exempt from income taxation by any law of the 
                United States.
            ``(4) No deduction for married individuals filing separate 
        returns.--If the taxpayer is a married individual (within the 
        meaning of section 7703), this section shall apply only if the 
        taxpayer and the taxpayer's spouse file a joint return for the 
        taxable year.
            ``(5) Nonresident aliens.--If the taxpayer is a nonresident 
        alien individual for any portion of the taxable year, this 
        section shall apply only if such individual is treated as a 
        resident alien of the United States for purposes of this 
        chapter by reason of an election under subsection (g) or (h) of 
        section 6013.
            ``(6) Regulations.--The Secretary may prescribe such 
        regulations as may be necessary or appropriate to carry out 
        this section, including regulations requiring recordkeeping and 
        information reporting.''
    (b) Deduction Allowed in Computing Adjusted Gross Income.--Section 
62(a) is amended by inserting after paragraph (15) the following new 
paragraph:
            ``(16) Higher education tuition and fees.--The deduction 
        allowed by section 220.''
    (c) Conforming Amendment.--The table of sections for part VII of 
subchapter B of chapter 1 is amended by striking the item relating to 
section 220 and inserting:

                              ``Sec. 220. Higher education tuition and 
                                        fees.
                              ``Sec. 221. Cross reference.''
    (d) Effective Date.--The amendments made by this section shall 
apply to payments made after December 31, 1995.

SEC. 3. EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE MADE 
              PERMANENT.

    (a) In General.--Section 127 (relating to exclusion for employer-
provided educational assistance programs) is amended by striking 
subsection (d) and by redesignating subsection (e) as subsection (d).
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1994.