To: Files

From: Nicole Maria

Date: February 27, 2022

Subject: Amy carries opportunities, tax ramifications, and American Opportunity Tax Credit.

Facts:

Kate is a 24 and a full-time student in the last final year of her undergraduate studies. She has

accumulated approximately $100,000 in student loan debt. She ‘s considering two job offers.

Offer #1: $50,000 starting salary and $5,000 per year for every year she is employed with the

firm for up to five years. Kate can use the money to pay back her loans or do whatever else she

would like.

Offer #2: $50,000 starting salary and up to $6,000 per year to Kate's 401(k) plan for every dollar

she pays toward her student loans as a dollar-for-dollar match for up to five years.

Amy is Kate's mom, and she pays for a portion of Kate’s $50,000 annual college tuition from a

fund she and her late husband established, but Amy doesn't pay for Kate’s living expenses. In

2021 Kate worked two jobs and made about $18,000. Kate pays for all her living expenses.

Amy’s projected AGI for 2021 is $90,000.

Issue:

1. What tax ramifications of each offer might be, and which offer the firm recommends?

2. Can Amy claim the American Opportunity Tax Credit, or if she cannot Can Kate do it?

Analysis and Opinions:

Offer #1
Offer #2 IRS allows 401(k) match for student loan repayments for employers’s plan to help

workers save for retirement while paying off students loans under Private Letter Ruling (PLR)

201833012. The IRS ruling addressed a major employer concern by stating that the proposal to

provide student loan repayments through an employer's contributions to the 401(k) accounts of

employees who are repaying student loans "would not violate the 'contingent benefit' prohibition

of section 401(k)(4)(A) and section 1.401(k)-1(e)(6)" of the tax code.This program would not

violate the contingent benefit prohibition under the Internal Revenue Code of 1986. This

company is recognizing the burden that student loan debt can have on their workers’ ability to

save for retirement and would like to help these workers..

2.Amy cant claim the American Opportunity Credit because of her AGI.You can't claim an

American opportunity credit if your MAGI is $90,000 or more ($180,000 or more if you file a joint

return). Publication 970 but Kate can claim the benefit from the American Opportunity Tax

Credit.The IRS says that if a student isn't claimed as a dependent on another person's tax

return, only the student can claim the credit. Form 8863.

Conclusion:

I recommend Kate go with the second offer. It will give her better monetary benefits long term.

Table of Authorities:

(PLR) 201833012

Publication 970

Form 8863.

401(k)(4)(A

1.401(k)-1(e)(6)
Reference:

Lynch, J. (2022). Millennials desired workplace benefits. AICPA. Retrieved March 1, 2022,

from https://www.aicpa.org/news/article/millennials-desired-workplace-benefits

For education tax benefits - IRS tax forms. irs.gov. (n.d.). Retrieved March 1, 2022, from

https://www.irs.gov/pub/irs-pdf/p970.pdf

For education tax benefits - IRS tax forms. irs.gov. (n.d.). Retrieved March 1, 2022, from

https://www.irs.gov/pub/irs-pdf/p970.pdf

IRS private ruling on Student Loan Benefit under 401(k) plan likely to fuel interest. Groom

Law Group. (2018, August 21). Retrieved March 1, 2022, from

https://www.groom.com/resources/irs-private-ruling-on-student-loan-benefit-under-401k-

plan-likely-to-fuel-interest/