The "Protecting American Students Act" modifies the calculation and reporting requirements for the excise tax on net investment income for private colleges and universities, specifically excluding certain students from the calculation and requiring detailed reporting of student counts.
Vern Buchanan
Representative
FL-16
The "Protecting American Students Act" amends the Internal Revenue Code to change how certain students are counted when determining if private colleges and universities are subject to an excise tax on net investment income. It stipulates that only students meeting specific eligibility requirements under the Higher Education Act of 1965 are to be included in this calculation. The Act also mandates that these institutions report the number of students used before and after adjustments when calculating the tax. These provisions are set to take effect for taxable years beginning after December 31, 2025.
New Tax Break for Some Private Colleges Kicks Off in 2026: Student Count Rules Get a Makeover
The "Protecting American Students Act" tweaks how some private colleges calculate a specific tax, and it all comes down to which students they count. Let's break it down:
Tax Time Tweaks
This bill changes the rules for a tax on investment income that applies to certain private colleges and universities with big endowments. Specifically, it messes with how these schools count their students when figuring out if they owe this tax. Starting in 2026, not all students will be created equal in the eyes of the IRS. Section 2 of the bill says only students who meet the eligibility requirements under section 484(a)(5) of the Higher Education Act of 1965 (20 U.S.C. 1091(a)(5)) will be counted.
- Real-World Example: Imagine Big State Private U has a huge endowment and 5,000 students. But, 500 of those are international students or don't meet the usual federal financial aid requirements. Under this bill, those 500 students might not count towards the tax calculation, potentially saving the university some serious cash.
Show Your Work
Section 3 adds a new reporting requirement. These colleges now have to show their math on their tax returns. They'll need to report:
- The number of students they would have counted before this new rule.
- The number of students they count after applying the new rule (excluding those who don't meet the federal guidelines).
- Why this matters: This is all about transparency. By showing both numbers, it's easier to see how this rule change impacts a university's tax bill.
The Bottom Line
This bill could mean a tax break for some private colleges, especially those with a significant number of students who don't meet specific federal eligibility requirements. It also shines a light on how these schools calculate their taxes, making the process a bit more open. While it might seem like a small change, it could free up funds at some universities, but it also means the government might collect less tax revenue. The real challenge? Universities might try to get creative with how they classify students to keep their tax bills low.