Confused by multiple deductions, credits and savings accounts that help pay for college, students and their families miss out on hundreds of dollars in tax benefits, a government report said Monday.
The Government Accountability Office, an independent arm of Congress that studies government programs and spending, analyzed the problem by examining about 1.8 million tax returns.
About one in four taxpayers eligible for an education tax break failed to claim one of the available credits or the tuition deduction, the analysis found.
On average, those taxpayers missed an opportunity to reduce their taxes by $169. About 10 percent of that group could have saved more than $500.
Tax programs place a bigger burden on students and their families than other government education programs. Students have to decipher the tax laws, apply them correctly, keep extensive records and understand how tax programs might affect their grants and loans, the report said.
That’s unlike federal grants and loans, which only require that students or their families fill out an application for assistance.
The complications became evident when the GAO looked more closely at the tax breaks claimed by taxpayers.
Rules restrict the number of tax breaks that a student or parent can claim at a time, leaving the taxpayer to choose. Taxpayers didn’t always make the optimal choice and could have lowered their tax bills by choosing differently, the report found. It estimated that about half of those returns were prepared by a paid tax professional.
The Treasury Department has urged lawmakers to take a look at education tax breaks and simplify them. The Senate’s top tax writers said Monday they plan to look into ideas to streamline the system.
Congress also expects to get recommendations next month from a presidential panel charged with developing ideas to simplify the nation’s tax laws, including tax credits and deductions.