By Steven Joshua Samuel (February 2011)
You may be able to reduce some of your most challenging 2010 education and health expenses with help from The American Recovery and Reinvestment Act of 2009 (the “Stimulus Plan”) and other recent tax changes. Here’s a summary of six examples and how to obtain more information for each.
The American Opportunity Credit, the former Hope Credit, has been expanded to include more benefits for 2010 education expenses. Individuals with adjusted gross income of up to $80,000 ($16,000 for joint filers) are now eligible for the full tax credit of up to $2,500. A tax credit directly reduces the amount of tax you owe and is more valuable than a tax deduction, which reduces the amount of income subject to taxation. Tuition, books, supplies and equipment are eligible expenses and a computer may now qualify in some cases. Use IRS form 8863 to claim the tax credit.
The Lifetime Learning Credit allows eligible taxpayers a lifetime total of a $2,000 tax credit for undergraduate, graduate and professional degree courses, including continuing education programs and any classes designed to improve job skills. Education expenses for a spouse and dependent child qualify and there is no limit to the number of years the education program may run. There are some limits regarding income and eligibility, and only one kind of credit may be taken for a student in the same tax year.
529 College Plan changes expand the definition of qualified higher education expenses to include, for example, computer equipment and internet access. You’ll find these and eleven other ways to offset college and post-graduate education costs explained in IRS Publication 970 “Tax Benefits for Education” at www.irs.gov.
Health Care Expenses
Small Business Health Care Tax Credit is included in the Affordable Care Act, which became effective March 23, 2010. A tax credit of up to 35 percent of health insurance premiums paid is available to small businesses with 25 or fewer full- time employees. To be eligible, the company must pay at least 50 percent of individual coverage for each employee who must have average earnings under $50,000 per year. Locate IRS Form 8971 or news release IR-2010-96 at www.irs.gov for more details.
Employer Coverage for Employee’s Children Under Age 27 is now generally tax free to employees. Employers with * cafeteria health plans may permit employees to make pre-tax contributions to cover this expanded benefit. This also applies to self-employed persons who qualify for a health insurance deduction on their federal income tax returns. See IRS news release IR-2010-53 for more information.
Medicare Part D Prescription “Donut Hole ” Rebate of $ 250 is provided by the Affordable Care Act for Medicare recipients who have reached their drug plan coverage gap. The rebate is not taxable. For information about how to obtain the rebate, see www.medicare.gov.
Remember to consult a qualified tax and financial advisor before making any important financial or tax decisions. For additional timely and helpful financial and investment information, visit www.samuelfinancial.com.
* A cafeteria plan is an employer-written plan complying with Section 125 of the Internal Revenue Code, which enables employees to pay for certain benefits such as health and child care with pre-tax dollars.
Samuel Financial, Inc. is located at 858 Washington St. Dedham, MA 02026 and can be reached at (781)461-6886. Securities and advisory services offered through Commonwealth Financial Network, member FINRA/SIPC, a registered investment adviser. Neither Samuel Financial, Inc. nor Commonwealth Financial Network offer tax or legal advice.