Bipartisan Group of House Members Introduce Tax Free Pell Grant Act

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

On Friday a bipartisan group of lawmakers from the House Ways and Means Committee reintroduced the Tax Free Pell Grant Act, which would seek to remove logistical barriers that prevent students from accessing tax credits that they may be eligible for while pursuing higher education.

The legislation, unveiled by Rep. Lloyd Doggett (D-Texas), specifically aims to better coordinate Pell Grants with the American Opportunity Tax Credit (AOTC).

Students who receive Pell Grants may qualify for the AOTC, a tax credit of up to $2,500 available to students during their first four years of postsecondary education to offset costs for qualified education expenses. But many fail to claim the tax credit because of the "complicated way" it interacts with the tax treatment of Pell Grants. AOTC rules require that applicants subtract their Pell Grant from eligible expenses on their 1098-T form when filing their taxes due to a grant/scholarship offset provision, reducing or eliminating their AOTC eligibility.

In order to address this complication the bill seeks to increase compatibility with the AOTC by ensuring that Pell Grants are not treated as taxable income, even if they are used for non-tuition education expenses.

“Simplifying our tax code means more in-pocket financial assistance for students seeking higher education,” said Rep. Doggett. “And this legislation would also expand eligible expenses under the existing tax credit to include computers and childcare, which have become essential in helping many students get the education they need to achieve their dreams.”

The bill also garnered support from Republican leaders on the Ways and Means Committee, just as it did during the previous session.

“Pell Grants are an important way for more lower-income Americans to get an education and work toward a successful career,” said Rep. Mike Kelly (R-PA), Chairman of the Ways & Means Subcommittee on Tax. “More than 216,000 Pennsylvania students benefited from Pell Grants last year. I’m again proud to join Congressman Doggett on this bipartisan legislation that will expand what these grants can be used for – including child care and computers -- so many more Americans.”

NASFAA has endorsed the legislation, and has been an advocate for previous versions of the bill.

Stay tuned to Today’s News for more coverage of this legislation.


Publication Date: 5/1/2023

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