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Congress votes to keep higher-education tax incentives

(January 2, 2013) - The bill (H.R. 8) passed by Congress this morning to avert the "fiscal cliff" preserves essentially all of the higher-education tax incentives enacted in recent years.

By making the 2001 tax changes permanent--most were scheduled to expire on December 31, 2012--the Coverdell education savings account retains its usefulness for K-12 expenses and allows up to $2,000 in annual contributions.

The provisions of the 2001 law affecting 529 plans, including tax-free treatment for qualified withdrawals, had already been made permanent by a 2006 law and were not at risk of expiring.

H.R. 8 increases the income and capital-gains tax rates on single taxpayers with more than $400,000 in taxable income and for couples over $450,000. These changes make 529 plans even more appealing for high-income families exposed to the higher tax rates.

The bill extends the $2,500 American Opportunity Tax Credit for five years (through 2017) and extends the above-the-line deduction for tuition and fees through 2013.

The extension of the tuition and fees deduction was made retroactively, as that incentive had already expired at the end of 2011.

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