Rep. Lloyd Doggett (D-Texas), a longtime champion of reforming higher education student tax benefits, has introduced HR 3000, bipartisan legislation to make Pell grants non-taxable and help community college students better access the American Opportunity Tax Credit (AOTC).
These are longstanding priorities of the American Association of Community Colleges (AACC), and the association is cheered at this development. Among others, Rep. Mike Kelly (R-Pennsylvania) joined in supporting the bill.
Doggett’s Tax-Free Pell Grant Act has three central components:
- Makes Pell grants fully non-taxable. Currently, only portions of the Pell Grant used for tuition and required fees are non-taxable. Given the average community college tuition is $3,860, and the current maximum Pell Grant is $7,395, this means that hundreds of thousands of community college students are subject to Pell Grant taxation each year.
- Alters the $2,500 AOTC so that the lowest-income community college students who receive a Pell Grant can also qualify for the tax credit. Currently, this is not the case, while far more affluent students (those with family incomes up to $180,000) qualify for the credit.
- Adds new eligible expenditures to AOTC, including computer and course material costs and child and dependent care expenses. This will help many students qualify for the maximum credit.
AACC particularly supports this legislation because it primarily benefits low-income students attending low-tuition institutions. The American Council on Education has estimated that the legislation would result in as many as 700,000 individuals not having to pay taxes on their grants.
Furthermore, because of the complexity of the tax code in this area, the Internal Revenue Service indicates that hundreds of millions of dollars in AOTC benefits are left unclaimed each year. Community college students are thought to be particularly likely to submit these “suboptimal” filings.
Reforming the tax code to improve student benefits has traditionally drawn bipartisan support. The most notable bipartisan achievement came in the 113th Congress when the House passed bipartisan legislation in this area as part of broader tax reform efforts.
Doggett’s legislation has drawn initial formal support from four Democrats and four Republican members, three of each party on the critical tax-writing Ways and Means Committee. From an advocacy perspective, it is critical to ensure that members from across the political spectrum appreciate the value of supporting the legislation.
In 2021, the House included provisions similar to those in HR 3000, but that budget “reconciliation” legislation was passed with only Democratic votes. Efforts were made to attach tax-free Pell Grant legislation to the fiscal year 2023 omnibus appropriations legislation passed at the end of 2022. Still, ultimately no tax provisions were included in that measure.
Upon introduction, the Tax-Free Pell Grant Act is backed by 18 groups, including AACC, the Association of Community College Trustees, the American Council on Education and many other major higher education groups. Further support in the broad advocacy community is expected to be forthcoming.
AACC will continue to keep its members informed on its advocacy in this area. It seems possible, if not certain, that the current Congress will pass a tax bill, and if it does, AACC will work to have HR 3000 included as part of it.