The Tax Reform Bill: What's In It, What's Not and What Your Institution Should Consider Next
Jonathan Krasnov, Peter Stokes, Robert Spencer
The Tax Cuts and Jobs Act of 2017 has the potential to impact colleges and universities.
Published Dec. 18, 2017
The U.S. Congress is scheduled to vote this week on the Tax Cuts and Jobs Act Conference Report. As with any large and complex piece of legislation, many provisions discussed in early drafts did not end up in the final bill, and others were amended along the way. Many of the proposals discussed, if enacted, have the potential to materially impact colleges and universities.
Below, we highlight several items that were ultimately excluded from the legislation, key provisions relevant to higher education and critical next steps your institution should consider*.
Which substantive provisions were in earlier versions, but are excluded in the final bill?
- Tax on graduate student tuition waivers
- Tax on tuition remission benefits for employees, spouses and dependents
- Tax on revenue from licensing
- Repeal of student loan interest deduction, Hope Scholarship Tax Credit, Lifetime Learning Credit and corporate deduction for education-assistance plans
- Elimination of tax-exempt status for private activity bonds**
What is in the bill, and what should institutions consider next?
|Direct impact on institution taxes:|
|Tax on unrelated business income (UBIT): Unrelated business taxable income will be separately computed (losses in one business unit may not be used to offset gains in another) and certain deductions will become disallowable such as costs related to athletic facilities. (Examples: broadcast rights for athletics, franchise agreements, alumni rentals of facilities).||
|Tax on investment income: 1.4% tax on investment income for private colleges or universities with an endowment value greater than $500,000 per full-time student, 50% of tuition paying students located in the United States and at least 500 full-time students.||
|Tax on universities for high-compensation employees: 21% tax on compensation in excess of $1 million for five highest-paid employees at a nonprofit.||
|Indirect institutional impact through changes to individual taxes:|
|Athletic seat license deduction: Elimination of 80% deduction on “seat-license fees” for athletic events.||
|Changes in deductions: Roughly a doubling of the standard deduction and the capping of state and local tax deductions at $10,000.||
The passage of the Tax Cuts and Jobs Act of 2017 may have immediate and unexpected impacts on your institution’s budget and/or financial projections. Huron has worked with hundreds of universities on analysis and planning related to strategic resource prioritization, cost reduction and revenue enhancement opportunities.
Learn more about our areas of expertise.
If you would be interested in speaking with one of our experts about the impact of this recent legislation on your institution, or other financial challenges you face, please contact us today.
*This memorandum is provided by Huron for educational and informational purposes only and is not intended and should not be construed as legal or tax advice.
** Bill still eliminates tax-exempt status of advance refunding bonds