Are You Missing Out on These Educator Tax Deductions?
You give so much to your job and your students throughout the year. We’ll help you claim all these deductions correctly so you can get back as much as possible.
The good news is that we didn’t go over the fiscal cliff at the end of 2012. A last-minute tax bill preserved or extended many of the tax benefits on which NEA members have come to rely.
“Most people probably have no idea what they almost lost,” says Jana Payton, principal tax research analyst at H&R Block. (NEA Members can receive special deals on tax preparation from H&R Block here.) In addition to maintaining the lower tax rates from the Bush-era tax cuts for all but the top brackets, the bill also permanently fixed the alternative minimum tax, which otherwise would have reverted to its original thresholds and created additional tax liability even for people with modest incomes, Payton says.
The bad news: The payroll tax cut of 2% that we enjoyed during the past two years wasn’t extended. “People saw an immediate impact in how much is withheld from their paychecks,” Payton says.
The $250 deduction for educators for classroom supplies, which had expired at the end of 2011, was renewed both for 2012 and 2013. This is a particularly advantageous deduction because it’s an above-the-line deduction on Schedule A, which means you don’t have itemize to take it, and it reduces your overall adjusted gross income (AGI).
One other important fix in the new tax bill was the removal of the 60-month limit on deducting the interest on student loans.
One caveat from Payton and other tax experts to keep in mind is that many provisions of the tax code have income caps, phase-outs and other wrinkles that may affect your actual tax liability. Be sure to work with a tax adviser or reliable tax software that clearly addresses your situation, especially if you’re in the higher-income brackets.
Abraham Schneier, senior technical manager at the American Institute of Certified Public Accountants, emphasized another general rule. “The most important thing is books and records,” he says. Keeping receipts or a careful log is critical for the classroom supplies deduction and other tax benefits.
Educators face several situations as they prepare their taxes that need special attention:
1. Income from outside work, such as a summer job or tutoring
If there’s no additional withholding on the outside work you do, then you’ll want to avoid a penalty for under-withholding—i.e., when your overall tax liability exceeds the amount of tax you had withheld by certain margins.
If this is the first year you’ve had extra income, there won’t be any penalty, Schneier says, because your withholding at work will cover 100% of your previous year’s income.
If you regularly have extra income, you have some options to avoid a penalty. One is to increase your withholding at your permanent job, either by reducing the number of exemptions you take (which increases the amount of withholding) or by specifying a certain additional amount on your W-4 to be withheld. The other option is make quarterly payments of estimated tax on the additional income.
The outside income should be reported on a Schedule C, where you also can deduct any expenses associated with the outside job. You’re also liable for “payroll” taxes (these are the contributions to Social Security and Medicare) on the extra income, which is calculated on a Schedule SE.
2. Other unreimbursed employment expenses
If your expenses on classroom supplies exceed $250, you could possibly deduct them as unreimbursed employment expenses, which are defined as expenses that help you conduct your job even if they aren’t required. However, these deductions are subject to the 2% limit on itemized deductions, so if you spend a lot on supplies, be mindful that you can deduct only the amount that exceeds 2% of your AGI.
“We don’t see too many educators who can take this kind of deduction,” says Payton, who has prepared taxes for teachers. If your AGI is $50,000, for instance, you could deduct only the expenses that exceed $1,000, even if you’re already itemizing deductions for mortgage interest or other reasons.
The same applies for expenses such as union dues, professional association fees or publication subscriptions.
The rules for deducting for a home office are fairly strict (as well as for equipment such as computers), and many people shy away from this deduction out of fear of triggering an audit. If you want to claim this deduction, your home office space must be used exclusively for work purposes—and that’s a tough criterion to legitimately fulfill.
3. Continuing education
If you take courses that you pay for yourself, whether or not they’re required for certification, then you have a few options for deducting that expense. The new tax bill renewed the deduction for tuition and fees for college education for 2012 and 2013. You can deduct up to $4,000 a year (less for those in higher-income brackets), and it’s an above-the-line deduction on Schedule A. So not only is it not subject to the 2% rule, Payton says, it reduces your AGI for other deductions that are itemized.
Another option is the Lifetime Learning Credit for 20% of education expenses up to $2,000. This is a credit, so it’s taken off your tax liability dollar for dollar. However, it’s nonrefundable, which means you have to have some tax liability for it to count against. You can take only one of these options—not both.
Get the latest tips and advice delivered right to your inbox!
Sign up to receive our monthly e-newsletter, NEAchieve!