H.R. 2543: Tax-Free Pell Grant Act

This bill, known as the Tax-Free Pell Grant Act, proposes changes to the Internal Revenue Code regarding Pell Grants and educational tax credits. Its main provisions are as follows:

Expansion of Pell Grant Exclusion from Gross Income

The bill aims to expand the number of Pell Grant funds that can be excluded from an individual's gross income for tax purposes. Specifically:

• It allows Pell Grants to be fully excluded from gross income if the funds are used for qualified tuition and related expenses.
• It clarifies that these grants must comply with the conditions set forth in the grant agreement to be eligible for exclusion.
• This exclusion will not affect other educational tax credits such as the American Opportunity Credit and the Lifetime Learning Credit.

Changes to American Opportunity and Lifetime Learning Credits

The bill also proposes changes to the American Opportunity Credit and Lifetime Learning Credit, enhancing eligibility for various educational expenses:

• It revises the definition of qualifying expenses to include tuition, fees, computer equipment, child and dependent care expenses, and course materials.
• Child and dependent care expenses, as defined in the bill, refer to costs incurred to enable a taxpayer to attend an eligible educational institution.
• New provisions allow tax deductions or credits for computer or peripheral equipment purchases up to $1,000, given these items are primarily used during the taxpayer's enrollment at an eligible institution.

Effective Date

The amendments proposed by this bill are set to take effect for taxable years beginning after December 31, 2024.

Relevant Companies

• None found