LANGHORNE, PA Today, May 5th, 2020, Representatives Brian Fitzpatrick (PA-01) and Lloyd Doggett (TX-35) introduced the American Opportunity Student Tax Relief Act. This legislation assures that college emergency grants to students authorized by the CARES Act are not taxed. It expands the American Opportunity Tax Credit (AOTC)—which already helps millions of students pay for the costs of college—with both a short-term expansion of the incentive during the pandemic and long-term improvements to the program.

“Congress must work together to make sure that we provide relief for students pursuing higher education who have chosen to invest in their future,” said Congressman Fitzpatrick. “This bipartisan bill will not only provide a short term boost to education tax credits in 2020, but will strengthen and simplify the American Opportunity Tax Credit going forward—making the credit more student friendly. This legislation also will ensure that emergency financial aid grants provided to students under the CARES Act are not taxed.”

“This pandemic has exposed and worsened many of America’s most painful inequalities, and the prospect of this economic crisis impeding college and college-bound students from access to higher education is unacceptable,” said Congressman Doggett. “Keeping students on track amidst economic freefall benefits students, universities, families—and all of us. Immediate relief, including ensuring that CARES Act emergency student assistance is tax-free, along with reforms to streamline and enhance higher education tax benefits for those most in need, will help us achieve recovery from the crisis.”

Since enacted in 2009, the American Opportunity Tax Credit has helped millions of students to pay for college, providing assistance with both tuition, and other costs not always covered by financial aid, like books and room and board. In 2015, Rep. Doggett’s proposal to make the credit permanent was enacted with broad bipartisan support. Currently, the credit offers a modest $2,500 credit against federal taxes for four years, a portion of which is refundable. This legislation would increase the size of the credit for all during the pandemic and increase the portion that is refundable to put the economically disadvantaged, and in particular first-generation college students, on a more even playing field. Assisting students helps families struggling to fund college tuition in this time and will also support the many universities who face their own uncertain future.

“The American Council on Education (ACE) strongly endorses the Expand American Educational Opportunity Act of 2020, which will help students during the COVID-19 crisis and enhance access to college by making important temporary changes and permanent reforms to the American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC),” said ACE President Ted Mitchell. “The temporary changes it makes will  respond to pressing student needs caused by the pandemic. Among the important long-term reforms, it consolidates the AOTC and LLC into one simplified, permanent AOTC providing up to $2,500 a year in tax relief for students and their families.”

This legislation:

  • Boosts AOTC and Lifetime Learning Credit in 2020:
    • AOTC: increases max credit from $2500 to $3,000, while making $1,500 refundable
    • LLC: Allow credit for 100% of first $2,000 in eligible expenses, $1,500 of which will be refundable
  • Excludes from taxable income emergency financial aid grants for students that was included as part of the CARES Act
  • Fixes an inconsistency in the code that disadvantages students who receive Pell Grants by allowing the AOTC to go towards the costs of education that the Pell Grant does not cover. 
  • Eliminates the need for two separate credits in 2021 (AOTC and LLC) by creating a bifurcated credit: one for students enrolled at least half time and one for students enrolled less than half time.
  • Changes lifetime limits, starting in 2021, from number of years claimed (4 years in current AOTC) to maximum monetary amount claimed ($15,000).
  • Increases refundability by $500 to a maximum of $1500 permanently.

Full bill text is available here.