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New Tax Reform and Higher Education

On December 20, 2017, Congress passed a tax reform bill that revised the nation’s tax code and will ultimately result in significant changes to higher education. Most notably will be a new tax imposed on excess compensation and investment income of the highest endowed private institutions. The legislation also modifies certain rules in relation to charitable deductions while excluding many of the highly publicized proposed provisions, such as taxing graduate school waivers.

New tax on large university endowments

  • A 1.4 percent excise tax will be added to private universities with endowments greater than $500,000 per student.
  • Will affect around 35 higher education institutions.

Excise tax imposed on executive compensation

  • Non-profits will be taxed 21% on compensations over $1 million paid to employees.
  • According to The Chronicle of Higher Education, the tax would be imposed on 158 private, nonprofit college employees (based of tax filings from the 2015 calendar year).

Eliminates the exemption for “advance refunding bonds”

  • Previously allowed non-profits to refinance old bonds earlier to take advantage of lower interest rates and postpone upcoming debt payments.

Doubles the standard deduction for tax filers

  • Will likely cut the number of people who itemize charitable contributions to colleges and universities by providing less incentive to donate.

Eliminates the charitable deduction for college seating event rights

  • Donations made to universities will no longer be deductible federally if the donations are made in exchange for an opportunity to buy tickets.
  • Tickets prices are likely to increase at colleges and universities with larger, more competitive athletic programs.

Tuition waivers for Graduate students will remain tax-free

  • The original House bill would have taxed graduate students’ tuition waivers as income.

Johnson Amendment will not be repealed

  • The Johnson Amendment prohibits tax-exempt organizations—churches, nonprofits, charities, foundations—from endorsing candidates running for political office.
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