Groups representing colleges and universities are praising the correction of a tax law mistake that increased costs for students who depend on scholarships.
The tax package (P.L. 116-94) approved by Congress the week of December 15 and signed by President Trump December 20 corrects a Tax Cuts and Jobs Act provision that changed the rules for taxing scholarships and grants used by students needing help with non-tuition expenses.
Instead of being imposed on a student’s net unearned income at the rates paid by their parents, the “kiddie tax” under the TCJA applied the higher rates used for trusts and estates.
The correction, which also allows individuals to seek refunds for extra taxes they may have paid, is getting high marks from higher education representatives.
“We applaud Congress for passing a long-needed, bipartisan fix to correct changes made to the so-called kiddie tax in the 2017 tax overhaul that inadvertently caused harm to hundreds of thousands of low- and middle-income students who rely on scholarship aid to pay for their college education,” Ted Mitchell of the American Council on Education said December 19.
”Taxing these students at the same rate as wealthy individuals, in a mistake that also affected some ‘Gold Star’ families receiving survivor benefits, resulted in a draconian tax hike on the backs of individuals who could ill afford it and already have been forced to shoulder this additional burden for the 2018 tax year,” Mitchell added.
Another tax package item popular with the higher education community repeals the section 512(a)(7) “parking tax,” a TCJA provision that imposed a 21 percent tax on expenses incurred by colleges and other tax-exempt organizations for providing transportation benefits to their employees.
“This is a legislative victory for students, families, colleges, and universities,” said Susan Whealler Johnston of the National Association of College and University Business Officers (NACUBO) December 21. “NACUBO and our member institutions have advocated tirelessly for a repeal of the parking tax — an unreasonable levy that only made college more expensive.”
The tax package also includes the retroactive reinstatement of an above-the-line tuition deduction of up to $4,000. The deduction’s expiration at the end of 2017 “means many students and families lost a valuable benefit that helps them finance a college education,” Mitchell said in a December 9 letter to the congressional taxwriting committees that was also signed by NACUBO and other higher education organizations.
The “Cadillac” tax on high-cost health plans has also been repealed. The tax would have led to “significant costs for higher education employers related to the health insurance plans they offer employees,” NACUBO said in a December 21 post.
Higher education groups also like the retroactive extension of the section 179D deduction for energy-efficient commercial buildings.
The deduction, which expired in 2017, helps public colleges make energy-efficient enhancements to buildings and start new energy-efficient construction projects, said NACUBO, which signed on to a December 6 letter to congressional leaders in support of the tax break.