The University Record, June 18, 2001

New tax legislation benefits U-M students and employees

By Mike Waring and Cindy Bank
U-M Washington, D.C., Office

While much of the focus on the tax bill signed into law recently by President Bush was on tax rate cuts, estate taxes and the “marriage penalty,” the legislation also included a number of tax improvements for U-M students and employees. While most of the provisions affecting the University community kick in Jan. 1, 2002, they all are slated to expire in 2010.

Beginning next January, the following provisions will take effect for U-M students, employees and their families:

  • Extending the tax exclusion for employer-provided educational assistance from undergraduate students to graduate students.

  • Increasing the income phase-outs for eligibility for student loan interest deductions. Under the new law, the phase-out will be $65,000 for single taxpayers and $130,000 for married taxpayers filing jointly. Limits will be raised automatically in future years to match inflation.

  • Repealing the number of months during which interest paid on qualified education loans is deductible. Previously, there was a 60-month limit.

  • Allowing a tax deduction for qualified higher education expenses. The income limits for eligibility start at $65,000 for singles and $130,000 for couples filing jointly, and increase to $80,000 and $160,000, respectively, in 2004.

  • Excluding from gross income any distributions from qualified tuition programs that are used for qualified higher education expenses. The law defines “qualified expenses” to include those for students who have special needs, such as a disability.

  • Increasing the amount that can be put into education IRAs from $500 a year to $2,000.

    U-M employees will see the following improvements in their retirement and IRA options:

  • Increasing the maximum amount that can be put into an IRA $1,000 per year from the current limit of $10,500 up to $15,000 by 2006.

  • Allowing an additional contribution of $1,000 for taxpayers 50 or older, up to an additional $4,000 by 2006.

  • Raising the total maximum for combined employee/employer contributions to IRAs to $40,000 annually and raising the employee income ceiling that an employer can match to $200,000.

  • Other changes to enhance fairness for women and to increase portability.

    For more information, contact Mike Waring or Cindy Bank in the Washington, D.C., Office, (202) 554-0578, mwaring@umich.edu or bankc@umich.edu.