Tax-cut law rushed to passage in 2017 included increase in taxes on students with college scholarships. Lawmakers say they plan to introduce fix this week.
A provision in the Republican tax law passed in 2017 could actually mean a hike in the tax bill for many low-income families with a student receiving scholarships for college, a top higher ed group warned lawmakers this month.
Scholarships or grants for nontuition expenses like room and board have traditionally been subject to the same marginal tax rate paid by parents. So low-income students could expect to pay low taxes. But the Tax Cuts and Jobs Act applies the same high marginal tax rates for those scholarships as it does for trusts and estates.
“Now these students are being taxed at the same rates as wealthy individuals,” wrote Ted Mitchell, president of the American Council on Education, in a letter to key lawmakers.
The issue, which was first reported by The New York Times, only recently began to register with college groups as the filing deadline approached for the 2018 tax period, the first since the law took effect.