Tax Benefits for Education in the Taxpayer Relief Act of 1997: New Legislative Developments

Publication Date: July 2001

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance; Education

Type:

Abstract:

The Taxpayer Relief Act of 1997 (P.L. 105-34) substantially expanded tax benefits for education. Four widely publicized provisions — two new tax credits, a new tax-exempt education savings account (education IRAs), and a new deduction for interest payments on education loans — can help families pay for college and other postsecondary education expenses.

Other provisions in the legislation extended the tax exclusion for employer education assistance, exempted individual retirement account (IRA) withdrawals used for higher education from early withdrawal penalties, expanded the tax exclusion for student loans that are forgiven, expanded the definition of qualified expenses for state tuition plans, and authorized a temporary enhanced deduction for corporate contributions of computer technology and equipment to elementary and secondary schools. The legislation also created new qualified zone academy bonds for public school renovation and program improvement.

The Internal Revenue Service Restructuring and Reform Act of 1998 (P.L. 105-206) made a number of minor and technical amendments in the 1997 legislation.

Two provisions were extended by the 106th Congress. The Ticket to Work and Work Incentives Improvement Act of 1999 (P.L. 106-170) extended the exclusion for employer education assistance through December 31, 2001. The Community Renewal Tax Relief Act of 2000 (P.L. 106-554) extended the authorization for the enhanced deduction for corporate donations of computer technology and equipment through December 31, 2003; it also expanded the deduction in several ways.

In the 107th Congress, the Economic Growth and Tax Relief Reconciliation Act of 2001 (P.L. 107-16) that President Bush signed on June 7, 2001, expanded a number of the tax benefits discussed above. Among other things, it increased contribution limits for education IRAs and allowed accounts to be used for elementary and secondary education expenses; exempted distributions from qualified tuition plans from taxes and allowed private institutions to establish prepaid tuition plans; permanently extended the exclusion for employer education assistance and expanded it to include graduate-level courses; removed a 60-month limit on the deduction for
interest on education loans; created a new tax deduction in lieu of the Hope Scholarship and Lifetime Learning credits; and provided further assistance for school construction. Generally, these provisions become effective after 2001. Subsequent legislation (P.L. 107-22) changed the name of education IRAs to Coverdell education savings accounts.