Report: 1.5 Million Americans Failed to Claim Eligible Education Benefits
About 14 percent of tax filers, or 1.5 million Americans, failed to claim a credit or deduction for which they may have been eligible, according to a recent report by the Government Accountability Office (GAO).
"Tax filers do not always select tax expenditures that maximize their potential tax benefits, possibly because filers are unaware of their eligibility for the tax credit or deduction or are confused about their use," the GAO report states. "On average, these filers lost a tax benefit of $466. The Internal Revenue Service (IRS) and Department of Education (Education) have taken steps to provide information on these provisions, but the number of filers failing to claim a higher education tax provision suggests more could be done."
In 2009, approximately 18-million tax filers claimed a higher education tax benefit for current expenses, compared to 12.8 million students who received Title IV.
Most education tax benefits, including the tuition and fees deduction and the parental exemption for dependent students, benefitted households with incomes above $60,000, while the majority of benefits from the other higher education tax expenditures, including the American opportunity credit, went to households with lower incomes.
Title IV grants tend to benefit students and families with incomes below the national median, or about $52,000 from 2006-10, according to GAO, while loans and work-study serve these students and those with family incomes above the median.
To address concerns about tax filers failing to take advantage of education benefits, GAO recommends:
- IRS and ED work together to develop a strategy to improve information provided to tax filers who appear eligible to claim a tax provision but do not.
- ED sponsor and conduct evaluative research into the effects of Title IV programs and tax expenditures at improving student outcomes. ED and IRS agreed with GAO’s recommendations. ED noted that while it does not have access to tax data, it will work with IRS to assist in taxpayer outreach.
A recent report by the Joint Committee on Taxation (JCT) shows that the 14 higher education tax benefits will cost the federal government $95.3 billion between 2010 and 2014. The JCT report notes that tax benefits are generally available to eligible taxpayers regardless of need, unlike financial aid, which is often directed toward students with financial need. However, the report states that some benefits are limited to those who make less than a certain amount. These income limited tax benefits have an income phase-out range.
The College Board's 2011 Trends in Higher Education report shows that aid from education tax benefits, while constant from 2009-10 to 2010-11, increased from the $6 billion in 2007-08 to $14 billion in 2010-11, with a growing portion of those funds going to the lower- and upper-income levels, due in part to expanded eligibility requirements in the American Opportunity Tax Credit (AOTC).
“Because of the increase in the income limits for education tax credits, the percentage of total tax savings from education credits and deductions going to filers with incomes of $100,000 or higher increased from 18 percent in 2008 to 26 percent in 2009,” the report states.
Some policy experts have argued that some education tax benefits could be allowed to expire to redirect funding to shore up funds for programs like the Pell Grant program that support the neediest students.