Federal Update: Tax Bill Emerges from Conference: A Mixed Bag for Higher Education

December 16, 2017

Continuing at breakneck speed, conferees agreed Friday to a final version of the Tax Cuts and Jobs Act of 2017 and released the language of the bill to the public late in the day. Final votes are expected in the House and Senate next week. After last minute jockeying by members, leadership has solidified Republican support for the bill and we do not anticipate further changes or roadblocks to its passage.The core of the bill remains a major restructuring and lowering of business tax rates. Individual rates are also adjusted down, but only temporarily and with many offsetting changes on allowable deductions and credits that will mean results will differ even within similar income bands. Coming into conference, there were several provisions targeting higher education and students. The conferees seem to have dropped most of those with direct impact on students, but preserved many of the provisions that focused on more on institutions, including – most disappointingly -- the excise tax on private college and university investment income. Following is additional detail in these areas.

  • Net Investment Income Excise Tax. The final bill includes the Senate language imposing a 1.4 percent excise tax on the net investment income of private colleges and universities with 500 or more tuition paying student and investment assets over $500,000 per student. The tax goes into effect in 2018.
  • Tax-free Tuition Remission for Graduate Students. In a victory for students and our community, conferees dropped the provision included in the House bill that eliminating tax-free tuition remission for graduate students, and other employees.
  • Student Loan Interest Deduction. Another significant win for students, the final bill drops the House bill’s provision that would have eliminated the student loan interest deduction that allowed low and moderate income individual an above-the-line deduction for interest on student debt.
  • Consolidation of AOTC/Hope/Lifetime Learning credits. The House bill included the consolidation of these tax credits for post-secondary expenses which eliminated benefits for part-time students and for studies beyond five years. The final bill does not include these changes.
  • Private Activity Bonds. Conferees dropped the House bill provision that eliminated Private Activity Bonds for private tax-exempt organizations. As expected, the final bill does contain the elimination of the advanced refunding provisions for bonds – a provision that was in both the House and Senate bills.
  • Employer Provided Educational Assistance. With strong support from higher education and the business community, this House bill provision eliminating the employer provided educational assistance program that offers up to $5250 to employees pursuing higher education and training was dropped from the final package.
  • Unrelated Business Income Taxes. The House and Senate bills proposed a series of changes in this technically complex area that can result in tax liabilities in particular university activities. Several proposals in this area fell away during the process, including a Senate proposal to tax income from name and logo trademark licensing; remaining in the final bill is a provision that would require tax liabilities be separately computed in each activity.
  • Charitable Giving. As a part of the bill’s broader simplification goals, the final measure contains a doubling of the standard deduction that is expected to substantially reduce the reach of the itemized charitable giving deduction and is widely expected to depress giving. However, the final bill does not entirely eliminate the estate tax, instead increases the deduction for individuals to $11 million and double that for couples – so many high worth individuals will continue to have tax reasons for careful estate planning.

We will continue to review this major legislation with experts from across the university. Beyond working to mitigate the impacts on students and programs, it is expected in 2018 the Congress will likely revisit this legislation to fix technical errors and address unintended impacts and we want to be prepared for those conversations to ensure that we take full advantage of any opportunities to further improve these outcomes. We will stay in touch on further developments and as always please feel free to be back in touch with Suzanne Day (suzanne_day@harvard.edu) or Jon Groteboer (jon_groteboer@harvard.edu) with any questions or concerns.