On Wednesday this week, taxpayers who help to pay for college educations officially could celebrate. Did you take time out to cheer National 529 College Savings Day?
Well, it probably wasn’t high on the day’s to-do list for most of us. But, Minnesotans who contribute to a college savings plan ought to take a hint from the observance and look into two of the state’s educational tax breaks.
Many will be eligible for either the Education Savings Account Contribution Credit or the similar Education Savings Account Contribution Subtraction.
Both of these allowances are broad. They apply to contributions to any state’s college savings plan, the Minnesota Department of Revenue announced. They are not limited to Minnesota’s plan.
In addition, any state taxpayer who makes a contribution can claim the credit or the subtraction. Translation: You don’t have to be the account owner or the student benefiting from it to take the tax break.
How can this affect your tax return? The Education Savings Account Contribution Credit is particularly powerful, because it directly reduces taxes. It gives back 50 percent of your contributions to a maximum of $500. However , it also requires income limits. Minnesota Revenue announced that the credit begins phasing out when a taxpayer reports more than $75,000 in Minnesota Adjusted Gross Income. The credit disappears at $101,900 for a single taxpayer and $162,680 for married couples. (2018 figures)
The Education Savings Account Contribution Subtraction does not require any income limits. However, it does reduce contributions by the amount of money distributed from the savings plan during the year. Still, the amount of the subtraction could be as much as $1,500 in income for a single taxpayer and $3,000 in income for a married couple. That’s a nice reward in any case.
Taxpayers calculate the tax credit or the subtraction on Schedule M1529.
Here are two important notes:
- A taxpayer can claim only one of the tax breaks. It’s either the credit or the subtraction – not both.
- These tax deductions apply only to college savings plans. Expenses for K-12 education have separate tax breaks in Minnesota.
For more information, jump to these pages on Minnesota Revenue’s Web site:
Education Savings Account Contribution Credit — https://www.revenue.state.mn.us/individuals/individ_income/Pages/EducationSavingsAccountContributionCredit.aspx
Education Savings Account Contribution Subtraction – https://www.revenue.state.mn.us/individuals/individ_income/Pages/EducationSavingsAccountContibutionsSubtraction.aspx
For more detailed guidance about these Minnesota’s tax incentives, contact Eric Buechler at EricJohn Ltd.