Endowment tax

Endowment tax is the taxation of financial endowments that are otherwise not taxed due to their charitable, educational, or religious mission. Endowments can be up to several billion dollars at some universities, some charitable foundations, and some medical foundations.

Endowment tax in the United States

Excise tax on private foundation endowments

Unlike nonprofit corporations classified as a public charity, private foundations in the United States are generally subject to a 1% or 2% excise tax on any net investment income.[1][2]

Federal changes in 2017 and 2018

As enacted in the Tax Cuts and Jobs Act of 2017 and amended by the Bipartisan Budget Act of 2018, an excise tax of 1.4% on endowment income is levied on universities that have at least 500 tuition-paying students and net assets of at least $500,000 per student. The $500,000 is not adjusted for inflation, so the threshold is effectively lowered over time.[3]

The endowment tax provision of the Tax Cuts and Jobs Act has been criticized as funding tax breaks for corporations and the wealthy at the expense of education.[4][5] Critics note that the tax could threaten financial aid for low-income students, stifle social mobility, and obstruct life-saving research.[5][6] There continue to be vigorous efforts that advocate the repeal of the tax.[7] Repeal legislation has been introduced in Congress with bipartisan cosponsorship.[8][9]

See also

References
  1. https://www.irs.gov/irm/part7/irm_07-026-001.html
  2. Glossary of Philanthropic Terms. (n.d.). Retrieved November 5, 2014, from http://dearborncf.org/glossary.aspx Archived 2016-03-04 at the Wayback Machine
  3. "Wealthy colleges face uncertainty as they seek ways to avoid new endowment tax". www.insidehighered.com. Retrieved 2019-01-10.
  4. "End the Endowment Tax". The Harvard Crimson. 20 February 2018. Retrieved 29 March 2020.
  5. Wilson, John. "Why the Endowment Tax Is Unconstitutional". Inside Higher Ed. Retrieved 29 March 2020.
  6. Powell, Alvin (21 December 2017). "Tax on university endowments passes". The Harvard Gazette. Retrieved 29 March 2020.
  7. Kreighbaum, Andrew (23 April 2018). "Endowment Tax Fight Not Over Yet". Inside Higher Ed. Retrieved 29 March 2020.
  8. "H.R.5220 - Don't Tax Higher Education Act". Congress.gov. Retrieved 21 June 2020.
  9. "H.R.4438 - Don't Tax Higher Education Act". Congress.gov. Retrieved 21 June 2020.


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