The New Tax Bill and Brandeis
Dear Students, Faculty, and Staff,
Over the past few days, the U.S. Congress finalized a significant restructuring of the way individuals and corporations are taxed in the United States. The debate around this bill has caused much concern in higher education and elsewhere, particularly for our graduate students. Under several earlier versions of the tax plan, graduate-student tuition waivers would have been taxed.
The current version of the bill, which President Donald Trump has just signed, raises several questions about support for higher education. However, to the relief of many in higher education, some of the more consequential provisions, which would have had a negative impact on the accessibility and affordability of education, were not included in the final bill.
Here are some important things you should know about the bill:
- There is no new tax on graduate-student tuition waivers. Colleges and universities can continue to provide tuition waivers for graduate students without students having to pay taxes on these waivers as taxable income. It would have been disastrous for graduate students’ finances and for graduate degree-granting institutions if these awards had been taxed.
- There is no new tax on employee-dependent tuition benefits. Employers — including Brandeis — can continue to offer employee tuition benefits on a tax-free basis. This is important to our community in three ways. It allows staff members to use our tuition benefits to take classes. It allows many Rabb School of Continuing Studies students to continue to rely on tuition benefits from their employers to defray the cost of their classes. And, because dependent undergraduate tuition benefits also remain untaxed, the discount Brandeis faculty and staff enjoy on tuition when their children attend Brandeis will remain tax-free.
- A new excise tax on endowments will not impact Brandeis right now. The bill will apply a 1.4 percent tax on investment income at private colleges with an enrollment of at least 500 students and with assets valued at $500,000 per full-time student. To meet that threshold, Brandeis’ endowment would have to be about three times its current size. However, many significant institutions of higher learning will be hit with this tax, which we think is counterproductive and wrong, because it harms institutions’ ability to invest in vital programs and student financial aid.
- Although we can continue to issue tax-exempt bonds, they may cost us more. Nonprofits like Brandeis work with government agencies to issue tax-free bonds to support capital improvements, such as our new residence hall, decreasing our borrowing costs. Some earlier versions of the bill would have eliminated our ability to do that. Fortunately, the final version does not. However, it does eliminate some money-saving procedures we were previously able to use.
- The doubling of the standard deduction (coupled with the reduction in the amount of state and local taxes that can be deducted) could reduce contributions to nonprofits, including universities, but it’s hard to say by how much. Because fewer people will itemize their deductions as a result, the tax incentive for donations will be reduced for many people. How much this will impact charitable giving is hard to say.
- The expansion of the estate tax exemption could do the same. The portion of an estate that can be passed down tax-free was expanded from $5.6 million to $11.2 million per individual. Again, it is hard to predict the impact these changes will have on donors’ estate planning.
This was an enormously complex bill, but I am relieved that Brandeis will avoid some of the consequences the bill in its earlier incarnations would have imposed.