The House is expected to vote on and approve a
legislative fix later today or Thursday to an error in the 2017 Tax
Cuts and Jobs Act (TCJA) affecting students who rely on scholarship aid
to pay for their college education. The fix has been included in
retirement legislation, the House SECURE Act (H.R. 1994).
ACE and others in the higher education
community have been urging Congress to correct the mistake made in
drafting the TCJA, which has inadvertently caused harm to many low- and
middle-income students and others such as survivors of active-duty
military personnel.
Since 1986, scholarships and grants spent on
non-tuition expenses such as room and board have been taxed. Prior to
the TCJA, full-time students under age 24 had that scholarship money
taxed under the so-called “kiddie tax” at the marginal rate of the
students’ parents, which is almost always very low, particularly for
low-income students. The TCJA changed the rate rules for the kiddie tax,
applying the much higher rates used for trusts and estates. These
changes to the kiddie tax sharply increased the tax levied on the
portion of scholarships set aside for expenses such as room and board
that colleges and universities award to students from families of little
or modest means.
Included in the SECURE Act are provisions
that repeal the changes made to the kiddie tax in the TCJA, returning
the expenses subject to the tax to their original lower rates.
Individuals who paid the higher tax in returns filed for the 2018 tax
year can file amended returns seeking refunds.
ACE President Ted Mitchell wrote a letter
this week to Rep. Richard Neal (D-MA), chair of the House Ways and
Means Committee, thanking the lawmaker for including the kiddie tax fix
in the SECURE Act. Earlier this month, Mitchell sent a letter
to the House and Senate tax writing committees that advocated for
fixing the mistake. ACE was joined in this advocacy effort by colleagues
from the National Association of Student Financial Aid Administrators
and other higher education associations.
In addition to working with lawmakers and
their staff on Capitol Hill on this issue, Mitchell is quoted about the
problem—which also affects others, such as Gold Star families receiving
survivor benefits—in a recent story in The New York Times. In addition, Mitchell wrote an op-ed published in the May 20 edition of The Hill advocating for the fix.
The Times noted that in his letter to
Congress, Mitchell stressed that the portion of college scholarships
subject to the tax is usually awarded to students from families of
little means. Among those students are college athletes awarded full
scholarships, many of whom come from economically disadvantaged
backgrounds.
Meanwhile, the Senate passed a narrower
kiddie tax fix Tuesday that only addresses the increased tax on
survivors of active-duty military personnel, not students and other
affected by the mistake. ACE will advocate for the broader fix included
in the House SECURE Act to be adopted by the Senate. A free-standing
Senate bill proposing a fix to the issue could be introduced as early as
this week.