NAICU Washington Update

House Tax Reform Bill Takes Aim at Private Colleges

November 12, 2017

The House Ways and Means Committee approved a tax reform plan that would generally follow through on promises to cut individual and corporate tax rates in exchange for the elimination of individual tax benefits.

The Tax Relief and Jobs Act (H.R. 1), approved on November 8, retained important benefits like the American Opportunity Tax Credit (AOTC), the tax benefits associated with Sec. 529 college savings plans, and left in place both the charitable deduction and the IRA charitable rollover.  However, it eliminated many important provisions and added new tax penalties to private college endowments and nonprofit executives.

The Joint Committee on Taxation estimates the House tax reform bill will cost higher education, and private colleges and universities in particular, more than $111 billion over ten years.

The Breakdown:
  • H.R. 1 would eliminate Coverdell education savings accounts, but allow current accounts to rollover into 529 plans. 
  • Tuition remission tax benefits under Sec. 117(d), employer-provided assistance under Sec. 127, and the Student Loan Interest Deduction would all be eliminated. 
  • The AOTC would expand from four to five years, with the fifth year benefit reduced by 50%. 
  • The Lifetime Learning credit would be eliminated in conjunction with the expanded AOTC, affecting lifelong learners and graduate students.
  • Private Activity Bonds would be eliminated.
  • Unrelated business income taxes on the nonprofit sector would be expanded.
Excise Tax on Endowments and Executive Compensation

In addition, a new 1.4% excise tax would be applied to private college and university endowment assets valued at $250,000 per full time equivalent student.  Schools with less than 500 students would be exempt.  Funds used toward educational or charitable purposes would not be included, but there is no specific or qualifying language on what that would include or how spending would be monitored. The bill also applies a new 20% excise tax on nonprofit executive annual compensation of $1million and above. 

Next Steps

The bill is expected to move to the House floor for approval the week of November 13.  In addition, the Senate Finance committee will also move forward with its version of a tax reform bill the same week.  

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