Law allows for up to $22,500 in tax deductions for college students
A trio of tax breaks for college students and their families went into effect with the start of the new year.
The programs, enacted under a bill signed into law last year, allow New Jerseyans with annual household incomes of $200,000 or less to deduct up to $22,500 from their state income tax bills.
“There’s been lots of talk about making New Jersey more affordable and grappling with what that means and being relevant for families in New Jersey moving forward,” Assembly Speaker Craig Coughlin (D-Middlesex), who sponsored the bill, said Thursday. “I’m glad that we’re continuing to take steps to address what has been one of the biggest barriers — perhaps the biggest barrier — to students obtaining a degree, and that’s cost.”
Nearly 13% of New Jersey residents owe debt on federal student loans, with an average outstanding balance of $35,600, according to the U.S. Department of Education. That figure does not include debt from private loans or ones offered through the state.
The first deduction allows eligible New Jerseyans to deduct up to $10,000 in in-state tuition payments. Tuition payments made using private and public student loans do not qualify for the deduction.
Residents can also deduct up to $2,500 in payments to student loans offered through the New Jersey College Loans to Assist State Students (NJ CLASS) program.
Awards through the supplemental loan program, administered by the New Jersey Higher Education Student Assistance Authority, generally carry lower interest rates than supplemental federal and private loans. Borrowers must take direct federal loans before using NJ CLASS.
The third deduction Coughlin highlighted Thursday allows residents to deduct up to $10,000 in contributions to a New Jersey Better Educational Savings Trust (NJ BEST) account. Students and their families can use the tax-advantaged 529 savings accounts to pay tuition and loan expenses.
The law also provides a maximum of $750 in matching funds for initial deposits into newly created NJ BEST accounts for taxpayers who earn up to $75,000.
“We have this 529 savings plan for our grandchildren because we cannot imagine a more valuable or enduring gift,” said Assemblywoman Mila Jasey (D-Essex), who chairs the chamber’s higher education committee. “We know they’d rather have Barbies and (Matchbox) cars, not to mention Nintendo Switches, but they will thank us later, and their parents will be happy it’s not Play-Doh.”
Filers won’t see savings from the deductions until they submit their tax bills in April 2023, though matching funds for initial NJ BEST deposits are available now.
The bill won unanimous passage in both chambers and was signed into law by Gov. Phil Murphy in June.
The Office of Legislative Services last year projected the deductions would cost the state between $87.2 million and $105.9 million in lost revenue per year, with an additional one-time $10 million cost in the current fiscal year for matching deposits into NJ BEST accounts.
“We’re here from the government to help,” Coughlin said. “Children and parents deserve our support to reach their potential socially, economically — to achieve their dreams.”