Bill Summary
The "Tax-Free Pell Grant Act" proposes amendments to the Internal Revenue Code to expand the exclusion of Pell Grants from gross income for tax purposes. Specifically, the bill aims to clarify that Pell Grants received by individuals will not be included in their taxable income if used for qualified tuition and related expenses. The changes also ensure that these grants will not affect eligibility for other education-related tax credits, such as the American Opportunity and Lifetime Learning Credits. The amendments will take effect for taxable years beginning after December 31, 2025, further supporting students by making Pell Grants tax-exempt under certain conditions.
Possible Impacts
The "Tax-Free Pell Grant Act" could have several impacts on individuals, including:
1. **Increased Financial Aid Accessibility**: By expanding the exclusion of Pell Grants from gross income, students receiving these grants will not have to report them as taxable income. This means that more financial aid will effectively be available for educational expenses, encouraging more low- and middle-income students to pursue higher education without the burden of tax implications on their grants.
2. **Improved Financial Planning for Students**: Students and their families may find it easier to manage their finances, knowing that Pell Grants will not affect their tax liability. This could lead to better budgeting and financial planning for college, as students can rely on the full amount of their grants without worrying about unexpected tax bills.
3. **Enhanced Educational Opportunities**: With the financial relief provided by the tax exclusion, more students may choose to enroll in college or vocational programs. This could lead to increased enrollment rates in higher education institutions and potentially higher graduation rates, as financial barriers are reduced. In the long term, this could contribute to a more educated workforce and positively impact the economy.
[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 1610 Introduced in Senate (IS)]
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119th CONGRESS
1st Session
S. 1610
To amend the Internal Revenue Code of 1986 to expand the exclusion of
Pell Grants from gross income.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 6, 2025
Mr. Whitehouse (for himself, Mr. Grassley, Mr. Tillis, and Mr. Wyden)
introduced the following bill; which was read twice and referred to the
Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to expand the exclusion of
Pell Grants from gross income.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Tax-Free Pell Grant Act''.
SEC. 2. EXPANSION OF PELL GRANT EXCLUSION FROM GROSS INCOME.
(a) In General.--Section 117(b)(1) of the Internal Revenue Code of
1986 is amended by striking ``received by an individual'' and all that
follows and inserting ``received by an individual--
``(A) as a scholarship or fellowship grant to the
extent the individual establishes that, in accordance
with the conditions of the grant, such amount was used
for qualified tuition and related expenses, or
``(B) as a Federal Pell Grant under section 401 of
the Higher Education Act of 1965 (as in effect on the
date of the enactment of the Tax-Free Pell Grant
Act).''.
(b) No Adjustment Under American Opportunity and Lifetime Learning
Credits.--Section 25A(g)(2)(A) of such Code is amended by inserting
``(other than a Federal Pell Grant under section 401 of the Higher
Education Act of 1965 (as in effect on the date of the enactment of the
Tax-Free Pell Grant Act))'' after ``section 117''.
(c) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2025.
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