GAO: Higher Education Tax Benefit Complexity Costly to Families

A federal watchdog agency told a congressional committee that the complexity of the current tax benefits for higher education expenses costs individual American families hundreds of dollars in potential tax savings.

In testimony prepared for a hearing before the U.S. House Subcommittee on Select Revenue, the Government Accountability Office concluded that many taxpayers “fail to claim tax preferences to which they are entitled or do not claim the tax preference that would be most advantageous to them.”

The GAO studied a sample of 2005 tax returns and found that about 19 percent of tax filers eligible for education-related tax breaks — representing about 412,000 returns — failed to claim any of them. The amount by which these tax filers failed to reduce their tax averaged $219, and 10 percent of these taxpayers could have reduced their tax liability by more than $500, according to the GAO.

Congress is considering legislation to consolidate some of the 12 tax benefits for families that pay education-related expenses. A measure introduced by Rep. Rahm Emanuel, D-Ill., and a companion bill introduced by Sen. Evan Bayh, D-Ind., would replace the current Hope and Lifetime Learning tax credits with a single, partially refundable credit. That credit would cover up to half of a taxpayer’s higher education expenses for a taxable year that do not exceed $3,000 and up to 30 percent of such expenses between $3,000 and $8,000.

You will need Adobe Reader to access the GAO’s testimony online.