Omnibus Tax and Spending Bill: Charitable IRA Rollover and AOTC Made Permanent; No Cuts to Student Aid

Just prior to adjourning the First Session of the 114th Congress, with Members racing to head home, Congress successfully passed the $1.1 trillion omnibus tax and spending bill, aka the “taxibus,” by huge bipartisan margins. The package makes two NAICU tax priorities permanent, and funds student aid programs without cuts. The bill was negotiated with the White House and signed into law by the president shortly after it arrived from Capitol Hill.

Charitable IRA Rollover, American Opportunity Tax Credit Made Permanent

The tax portion of the “taxibus” bill will, among other things, make the Charitable IRA Rollover and the American Opportunity Tax Credit (AOTC) permanent. These are two significant benefits for higher education and top NAICU tax priorities.

• The Charitable IRA Rollover, a temporary benefit since 2009, will be permanent. This important benefit allows individuals age 70½ and older to donate excess retirement funds directly to charities, including colleges and universities, up to $100,000 annually. This provision last expired on December 31, 2014. Effective retroactively for 2015 and beyond, this will be a permanent benefit. The predictability provided by making this provision permanent should allow colleges and universities, and their alumni, to better utilize this benefit.
• The American Opportunity Tax Credit will be permanent. This is the most generous tuition benefit available to students and families, allowing a $2,500 credit against tuition expenses annually for individuals earning less than $80,000 for single filers, and $160,000 for married/joint filers. This benefit was set to expire on December 31, 2017. This will now be a permanent benefit.

In addition, the new law will phase out the above-the-line tuition deduction, which had expired at the end of 2014. It will be renewed for 2015 and 2016 only, and will expire at the end of 2016. This benefit is not as generous as the AOTC, and is confusing and duplicative. With a permanent AOTC in place, the elimination of the tuition deduction will help simplify the tuition benefits.

Also of benefit to colleges and universities will be a two-year delay in the Cadillac tax on high cost employer-sponsored health plans. The new tax was due to take effect on January 1, 2018, and will now be pushed to January 1, 2020.

On the spending side, cuts proposed this summer to Supplemental Educational Opportunity Grants (SEOG) and Federal Work Study (FWS) did not materialize in the final bill, resulting in no cuts to student aid programs. The Pell Grant is set at $5,845 for the 2016-17 award year; TRIO programs are increased by $60 million; GEAR UP is increased by $21 million; and SEOG, FWS, and graduate education are level-funded.

However, all language prohibiting the Department of Education from implementing regulations on state authorization, credit hour definition, teacher preparation, and gainful employment did not survive the negotiations.

The successful passage of this package was jumpstarted by the two-year budget deal reached in late October. That two-year deal, combined with election year politics and having only 86 days when both chambers are in session before election day, will most likely mean the FY 2017 appropriations process will keep close to this year’s levels. The agreement on the tax benefits results from the bipartisan desire to incrementally end confusing expiring tax benefits. In the absence of any successful fundamental tax reform legislation, Congress is moving ahead with making permanent those benefits most important to their constituencies.

Contact

Karin Johns - Tax Policy
Karin@naicu.edu

Stephanie Giesecke - Spending
Stephanie@naicu.edu