March 3, 2000
As 1999 federal income tax returns are prepared, our region’s residents should take note of a series of federal tax credits and deductions.
Legislation passed in 1998 will enable many Southwest Virginians to reduce the amount of their federal tax obligation. They can take advantage of newly available tax credits and deductions for dependent children, higher education expenses and for health insurance. These changes will help families pay for college and will reduce the tax burden for families with children and the self employed. Outlined below are some tax benefits which will be of special interest to Ninth District residents.
For families earning less than $80,000 per year, the law provides a 100% tax credit for the first $1,000 of college tuition and a 50% credit for the next $1,000 of tuition for the first two years of college. Therefore, up to $1500 can be claimed as a tax credit.
The legislation also offers a 20% tuition tax credit up to a tuition ceiling of $5,000 for college juniors and seniors. Accordingly, a credit of $1,000 is available for tuition attributable to college juniors and seniors. In the year 2001, this tax credit will potentially double to $2,000, as the tuition ceiling applicable to it doubles to $10,000. This component of the tax credit is available not only to college juniors and seniors but also to adults who return to college to finish a degree or to obtain additional degrees or to get job retraining.
2. Interest Deduction for Student Loans --Taxpayers may also be able to deduct up to $1000 in interest paid on qualified student loans. This deduction is available on qualifying loans even if the taxpayer does not itemize deductions.
3. Saving for Higher Education - qualifying taxpayers may also contribute up to $500 per year, per child to an education IRA which will assist parents in saving for their children’s future educational expenses. The earnings on an educational IRA will grow tax-deferred, and later tax free withdrawals can be made to pay for the child’s education expenses.
For more information on education related tax credits and deductions, see Publication 970, Tax Benefits for Higher Education or visit http://www.irs.ustreas.gov/ to download a copy of Publication 970.
Next week’s Capitol Commentary will focus on the availability of the Earned Income Tax Credit and will provide information on how that tax credit can be claimed.
For more detailed information on tax benefits, taxpayers can obtain Publication 553 from their local library, on-line at http://www.irs.gov or toll free the IRS service center in Richmond at 1-800-829-1040.