For the first time in over 30 years, America has a significantly different tax plan in place.
The bill promises to slash taxes for all Americans. It gives its biggest cuts—3.4%—to taxpayers earning over $733,000 a year. Savings are smaller for everyone else, down to 0.4% (about $60) for those earning under $25,000 a year.
Revised tax brackets aren’t the only changes coming with the new bill. The bill kills the Affordable Care Act’s health insurance mandate, raises the standard tax deduction, and gets rid of the ability to write off state and local taxes on your federal form—among other things. Accountants and experts are still trying to unravel all of the changes and what they mean for taxpayers, but there are a few things we know for certain about the tax plan’s effect on students.
That’s what we’re going to focus on here. How does this tax plan affect you if you’re a student now—or one of millions who used to be—and dealing with your student debt?
The Good News
Let’s start with the good news: a few very important tax provisions aren’t changing at all! That includes tuition waivers, tuition assistance, and loan interest deduction. Let’s take a quick look at each.
About 145,000 graduate students in the United States benefit from some sort of tuition waiver. These waivers let grad students pay less tuition (or none at all) in exchange for doing work at their university.
Early versions of the tax bill threatened to tax these waivers, which would have put a huge burden on graduate students—who aren’t exactly known to have tons of spare money laying around to begin with.
Luckily, the final version of the tax bill kept these protections in place, meaning that grad students will have one less thing to worry about.
Does your job pay for you to take college credits and further your education? That’s called tuition assistance, and it too was originally in the crosshairs of the GOP tax plan. Under the previous tax code, students could deduct up to $5,250 from their employers’ tuition assistance contributions. This was set to vanish from the tax code before the bill went to conference committee.
Instead, that number remains in place today—meaning there’s no change in how the IRS views tuition assistance.
Consider that all the more reason to take advantage of tuition assistance programs if your employer offers them!
Loan Interest Deduction
This is another proposed tax provision that didn’t make it into the final cut—and it’s a big one. Considering that there is over $1.45 trillion dollars in student loan debt in the country—and that the graduating class of 2016 left college with 6% more student debt on average than the previous year’s class—this is an issue that impacts a lot of people and a lot of money.
The previous tax code allowed anyone making under $80,000 a year (or under $165,000 as part of a married couple) to deduct up to $2,500 of their student loans. That’s a significant chunk of change, and it too was originally set to vanish under the new plan.
But once again, the final version of the plan allowed these deductions to remain the same. While anyone carrying student debt would love to see these deductions go up, they can definitely breathe a sigh of relief that they at least didn’t go away.
The Bad News
Let’s admit it: a tax plan that was assembled in a remarkably short amount of time (to the point where the ‘final’ version of the bill included handwritten notes in the margins) and that was passed on a straight party-line vote (not a single Democrat voted for it) might seem a little frightening to a lot of Americans.
But, as we pointed out above, the key provisions that affect students—and anyone still carrying around student debt—have remained unaffected. This is good news!
There is, however, some bad news. Many of the new tax breaks for individuals are set to expire over the next few years. The repeal of the healthcare mandate will drive up healthcare prices as more people opt out of coverage.
Of course, if you need help figuring out exactly what the new tax plan means for you… that’s what we’re here for! Get in touch and we’ll be happy to help you prepare for life under the new tax plan. SL Tax will take all the stress out of getting ready for your taxes.