Welcome to PayTech’s August Update
As the back-to-school “season” has become a marketing phenomenon, it has brought on some ridiculous pressures and stress for parents, writes Laura Vanderkam.
Thanks to Pinterest, I now know about the Back to School Fairy. She visits on School Year’s Eve (yes, there is a School Year’s Eve). I imagine she leaves #2 pencils under the child’s pillow, but I’m not sure, because the fairy was #10 on a list of 25 back-to-school traditions including treat labels for the lunch box and a school supply scavenger hunt.
I got so overwhelmed I closed my browser.
I have four children under the age of nine. My husband and I both travel for work. The last thing I need is more expectations. But as the back-to-school “season” has become a marketing phenomenon, it definitely suffers from expectations creep – and for working parents, that means lots of late-night trips to Staples and Target, long lines and big bills. Add in to that the challenging of managing new logistics – new schedules for the kids – and you’ve got full-on back to school stress.
“So much seems up in the air,” says Naomi Riley, a New York Post columnist and mother of three. “You’re trying to put together a schedule for the whole family including carpools, after school activities, child care. Is it all going to work?”… (read more)
Parents and grandparents looking for easy ways to learn about and enroll in 529 plans—higher education savings plans with tax benefits—may find answers in their employer’s break room. Many companies are adding 529 plan seminars and payroll deductions to their benefits packages. More than 5,000 employers participate through Upromise Investments, Inc. programs alone.
[Take these 4 steps before opening a 529 plan.]
Here’s how parents and grandparents can make the best use of 529 plan benefits through the workplace:
- Attend and ask questions at seminars and at benefits fairs: When an employer participates in a 529 plan, a 529 plan educator will generally give an interactive, lunch-hour presentation. Janet Kottman, employed by Upromise Investments as senior institutional relationship manager for Missouri’s direct 529 college savings plan, says that sometimes she gets to present two slides before she’s asked to answer questions—such as “Can I save for my grandchild via payroll deduction?” and “Can I use 529 plan benefits if my child attends a trade school?”
There may be multiple meeting days to choose from for a larger workplace. For instance, Sprint offered four 529 sessions to its workforce at its Overland Park, Kan., campus in February 2012.
Normally, the plan educator is from the 529 plan of the state where employees reside. Since it’s possible to select 529 plans from anywhere in the country, Kottman directs attendees to 529.com or the College Savings Plans Network website to view information on other plans.
[Learn why to consider purchasing another state’s 529 plan.]
- Bring home materials to review later: Generally, employers who participate in a 529 plan will give out materials about the plan to employees. A plan representative may also give out brochures at a benefits fair, T. Rowe Price 529 Plan Senior Product Manager Thomas Kazmierczak says.
Take plan educators’ business cards so you can ask additional questions at another time, Kottman says. At benefits fairs, she says, it’s hard to answer questions because she only gets seconds with each individual… (read more)
If you want to attract and retain the cream-of-the crop of employees, you’re likely already aware that offering benefits as part of a compensation package is a necessity. Due to the costs involved, small employers in particular must choose carefully among the benefits available—you want to offer the benefits that employees value most while also being affordable. Benefits that cover employee educational costs can fit that bill. If administered correctly, a program paying for your employee’s education, work-related or not, is a tax-free benefit for them, and a business deduction for you.
Generally, there are two methods that you can use to offer educational benefits to your employees and obtain favorable tax treatment for all concerned:
a payment/reimbursement arrangement or
an educational assistance program
Which method is the right one for your business and your employees depends mainly on whether the education qualifies as work-related.
Paying or Reimbursing Employees for Work-Related Education
Reimbursing or paying for employees’ expenses for work-related education is a great way to add to your employees’ skills and knowledge, which they can then apply to help make your business a success. And for employers, the amount paid or reimbursed for an employee’s education expenses is a deductible business expense. As an added bonus, if the educational expenses qualify, employees may be able to exclude the payment or reimbursement from gross income as what is known as a working condition fringe benefit. Let’s look at what’s required to qualify for this tax break.
Tax-free treatment for employees. For employees to receive tax-free treatment for the payment or reimbursement, the education must meet at least one of the two following tests making it work-related… (read more)
Although the 2016 educational credit publication has not been released yet, the following 2015 regulations can be a useful guideline for the approaching school year. To access the latest information on this topic, visit www.irs.gov and type “education credits” or “Publication 970” in the search box.
Back-to-School Education Tax Credits
IRS Summertime Tax Tip 2015-14, August 3, 2015
If you, your spouse or a dependent are heading off to college in the fall, some of your costs may save you money at tax time. You may be able to claim a tax credit on
your federal tax return. Here are some key IRS tips that you should know about education tax:
- American Opportunity Tax Credit. The AOTC is worth up to $2,500 per year for an eligible student. You may claim this credit only for the first four years of higher education. Forty percent of the AOTC is refundable. That means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any taxes.
- Lifetime Learning Credit. The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
- One credit per student. You can claim only one type of education credit per student on your tax return each year. If more than one student qualifies for a credit in the same year, you can claim a different credit for each student. For instance, you can claim the AOTC for one student, and claim the LLC for the other.
- Qualified expenses. You may use qualified expenses to figure your credit. These include the costs you pay for tuition, fees and other related expenses for an eligible student. Refer to IRS.gov for more on the rules that apply to each credit.
- Eligible educational institutions. Eligible schools are those that offer education beyond high school. This includes most colleges and universities. Vocational schools or other postsecondary schools may also qualify. If you aren’t sure if your school is eligible:
- Ask your school if it is an eligible educational institution, or
- See if your school is on the U.S. Department of Education’s Accreditation database.
- Form 1098-T. In most cases, you should receive Form 1098-T, Tuition Statement, from your school by Feb. 1, 2016. This form reports your qualified expenses to the IRS and to you. The amounts shown on the form may be different than the amounts you actually paid. That might happen because some of your related costs may not appear on the form. For instance, the cost of your textbooks may not appear on the form. However, you still may be able to include those costs when you figure your credit. Don’t forget that you can only claim an education credit for the qualified expenses that you paid in that same tax year… (read more)