The new tax bill passed in December 2017 has gotten a lot of media attention. This tax cut is the largest single reduction in U.S. history, dropping the corporate tax rate from 35 percent to 21 percent. The bill also lowers taxes for a majority of the wealthy and middle class. But how does this tax bill affect the average millennial budget?
Millennials in graduate school are in luck. Universities waive some 145,000 graduate students’ tuition, usually in return for teaching or doing research. In the first draft of this bill, that tuition waiver would have been taxed. But due to protests and little support, the tax was left out of the final cut.
For student loans, there are also some changes. Students are allowed to claim a deduction of up to $2,500 a year on the interest that they pay for student loans. However, there is a catch. As your income increases when you enter the workforce, you don’t get the deduction. If you begin to make more than $80,000 or if you and a partner begin to make more than $165,000, the claim goes away. The first draft of this bill had gotten rid of this deduction, but the bill that was passed kept it.
There is also good news for millennials paying for school while being employed. Certain education programs now have the ability for student employers to contribute up to $5,250 to their tuition tax-free. This program has helped a number of students, as it makes it possible to work a quality job while affording education.
Millennials with children
While most millennials don’t have children, those who do will benefit from this tax plan. Those with children are eligible for an extended tax credit for families. The amount varies but can be up to $2,000 per child. There are some restrictions to this. A child must be under 17 years old, they cannot provide more than half of their income, they must be a U.S. citizen, and they have to live with you for half of the year.
Some portions of the bill are negative for millennials. The bike code that is currently in place lets commuters who bike to work deduct $20 from their income for each month they bike. This was intended to cover the costs of riding a bike and also reward bicyclists for going green, but it’s been removed in the current bill. Health care is now not mandatory, which means millennials who utilized Obamacare might start to lose the stability of that mandated plan. However, most millennials have health care from their employers because they alone cannot afford it. One benefit from repealing the mandate is that people will no longer be fined for not having health insurance.
The new tax bill is dense and hard to break down. While it is not perfect or the ideal bill, there are parts that millennials can benefit from. Components such as the child tax credit, graduate school tuition waivers not being taxed, as well as help with student loan interest, are positive changes.
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