Washington Lawmakers Reach Sweeping Tax and Budget Agreement, Perkins Loan Program Extended to 2017-18

Updated February 19, 2016: While congressional budget documents originally indicated that there would be a $140 increase to the maximum Pell Grant award for academic year 2016-2017, the Department of Education recently provided an update correcting that number. The increase to the maximum award will be $40, lifting the maximum award to $5,815.

Today, Congress passed a $1.1 trillion FY16 omnibus spending bill, which provides funding for the federal government through September 30, 2016. A wide-ranging tax extenders package was combined with the omnibus, and the legislation is expected to be signed into law by President Obama. The massive deal contains numerous provisions important to the higher education community, with implications for students, families, and institutions.

After intense negotiations with Sen. Lamar Alexander (R-TN), the House and Senate this week also agreed to a two-year extension of the Perkins Loan program. The legislation imposes new eligibility limitations, but allows institutions to continue Perkins lending while Congress deliberates the program's long-term fate during Higher Education Act reauthorization discussions. Additional details can be found below.

Topline budget and tax highlights include:

• Implementation of the so-called "Cadillac tax"—the excise tax on high-cost employer-sponsored health plans that was implemented as part of the Affordable Care Act—will be delayed by two years. The tax will first be effective in 2020, rather than 2018 as originally scheduled.

• The maximum Pell Grant award will increase by $40, to $5,815 for the 2016-17 school year.
   
• Funding for the National Institutes of Health will increase by $2 billion (up 6.6 percent).
   
• Colleges and universities will no longer have the option of reporting amounts billed on IRS Form 1098-T. All institutions will be required to report payments for qualified tuition and related expenses.  The change is effective for tax year 2016 forms.
   
• The filing date for employers to submit information returns (Forms W-2 and 1099-MISC) to the IRS will be accelerated to January 31, effective for 2016 forms filed in January 2017.  

In recent weeks, a number of provisions in the 2,000-page budget bill and 233-page tax bill had become particularly contentious on Capitol Hill; the fate of the tax bill was in question until final votes were cast. The tax changes are estimated to cost more than $600 billion over 10 years. Democrats largely opposed the tax package because of its cost, while Republicans argued the tax cuts would stimulate economic growth.  The mammoth spending bill reflects trade-offs on a number of policy riders, with notable victories for both parties on issues ranging from oil exports to campaign finance.

A detailed summary follows. NACUBO is continuing to review the legislation, which has implications for administrators across numerous campus business office functions. Several provisions will require future clarification and additional guidance, which NACUBO will provide. If you have any questions or concerns, please contact us as advocacy@nacubo.org.

Shortcuts to:

• Budget Highlights
• Tax Highlights
  
  • Tax provisions impacting colleges and universities
  • Changes to American Opportunity Tax Credit 
  • Other Student/Taxpayer Provisions
• Perkins Loan Agreement

BUDGET HIGHLIGHTS
Financial Aid

• The maximum Pell Grant award will increase by $40, to $5,915 for the 2016-17 school year. While congressional budget documents originally indicated that there would be a $140 increase to the maximum Pell Grant award, the Department of Education recently provided an update correcting that number.
   
• Contrary to earlier versions, the omnibus does not include any new policy provisions that would have blocked the Department of Education's rules on gainful employment, credit hour, state authorization, and teacher preparation or hinder the recently unveiled College Scorecard.
   
• Funding remained level for Supplemental Educational Opportunity Grants and Federal Work-Study, but was increased for federal TRIO (up 7.1 percent) and GEAR UP (up 7 percent) programs.
   
• The bill also makes positive changes for students attending community colleges without a high school diploma or GED credential, the so-called "ability-to-benefit" (ATB) students. Limitations have been lifted for ATB students enrolled in career pathway programs eligible for Pell Grants. These students are once again eligible for the full Pell Grant maximum award. The omnibus also broadens the definition of a career pathway program, which may simplify the administration of this provision and possibly make more ATB students Pell-eligible.
   
• The accompanying report to the budget bill references the October 2015 GAO report that identified more than $400 million in Post-9/11 GI Bill overpayments and states, "VA is urged to adopt the recommendations that GAO identified, particularly updating the methods by which VA notifies students and institutions of debts owed (to include e-mail notification) and developing a system to identify students' enrollment status each month." Lawmakers also encouraged the use of dual certification and requested that VA "post on its website all of its policy directives, guidance, and training on processing student Post-9/11 GI Bill benefits."

Research

• Funding for the National Institutes of Health will increase by $2 billion (up 6.6 percent) to $32 billion.
   
• The National Science Foundation is funded at $7.46 billion, up $119 million (1.6 percent).
   
• The Department of Energy's Office of Science budget will rise by 5.6 percent to $5.35 billion. 
   
• Spending on science programs at the National Aeronautics and Space Administration would grow by 6.6 percent to $5.6 billion.
   
• The Department of Agriculture's competitive grant program, the Agriculture and Food Research Initiative, will see an increase of 7.7 percent to $350 million. 
  

TAX HIGHLIGHTS
Tax provisions impacting colleges and universities:

• Two-year delay of the Affordable Care Act "Cadillac tax."  The excise tax on high-cost employer-sponsored health plans enacted as part of the ACA will first be effective in 2020 rather than 2018 as originally scheduled.
   
• Mandated Box 1 reporting on Form 1098-T. Beginning with the 2016 tax year, institutions will be required to report payments for qualified tuition and related expenses in Box 1 of IRS Form 1098-T.  There will no longer be an option to report amounts billed for qualified expenses in Box 2.
  
  NACUBO recognizes the challenges ahead due to this change. We have already alerted policymakers that an educational institution's calculation of amounts paid for qualified tuition and related expenses on Form 1098-T may not correspond with amounts taxpayers claim on their tax returns for a number of reasons related to timing of payments and application of funds. The IRS will need to use its regulatory authority under Section 6050S to provide guidance to educational institutions on implementing this change.
   
• Acceleration of IRS filing dates for Forms W-2 and 1099-MISC.  Employers will now need to file these information returns with the IRS by the same date as they are required to furnish them to employees and other payees: January 31. There is no longer an extended filing deadline for electronically filed forms.  The due date for employee and payee statements remains the same. This provision is effective for 2016 forms to be filed by January 31, 2017. 
   
• Permanent extension of tax-free distributions from Individual Retirement Accounts for charitable purposes. The provision permanently enables individuals at least 70½ years of age to make tax-free donations from IRAs to charities, including colleges and universities. The IRA charitable rollover distribution may not exceed $100,000 per taxpayer in any tax year.
   
• Permanent extension of the modification of tax treatment of payments to controlling exempt organizations. Also known as §512(b)13(E), this provision permanently counts as taxable unrelated business income only the portion of payments to the controlling exempt organization from interest, annuities, rents, and royalties by a controlled organization that exceed fair market value.
  
  
• Safe harbor for de minimis errors on information returns and payee statements.  The provision establishes a safe harbor from penalties for the failure to file correct information returns and for failure to furnish correct payee statements by providing that if the error is $100 or less (or $25 or less in the case of errors involving tax withholding), the issuer of the information return is not required to file a corrected return and no penalty is imposed.  A recipient of such a return (e.g., an employee who receives a Form W-2) can elect to have a corrected return issued to them and filed with the IRS. The provision is effective for returns and statements required to be filed after December 31, 2016.
   
• Permanent extension of mass transit commuter tax parity. The provision permanently extends the maximum monthly exclusion amount for transit passes and van pool benefits so that these transportation benefits match the exclusion for qualified parking benefits. These fringe benefits are excluded from an employee's wages for payroll tax purposes and from gross income for income tax purposes.
   
• Permanent extension of tax credit for research and experimentation. This credit allows corporations to claim a business tax credit for research and development activities conducted at universities or other qualifying organizations, including research consortiums that may include universities.
   
• Two-year extension of Section 179D. This energy conservation incentive was not made permanent, but rather extended for 2015 and 2016, and despite significant efforts it was not expanded to include participation by 501(c)(3) nonprofit organizations.

Changes to American Opportunity Tax Credit (AOTC):

• Permanent extension of the expanded AOTC. The AOTC provides up to $2,500 for four years of postsecondary education. Phase-out amounts for the limitations on adjusted gross income (AGI) were raised to $80,000 (for single filers) and $160,000 (for those married filing jointly) for 2009 to 2017. Currently scheduled to expire in 2017, the provision makes AOTC permanent.
  
  
• Prevention of retroactive claims of AOTC. Taxpayers are prohibited from retroactively claiming the AOTC by amending a return (or filing an original return if he or she failed to file) for any year if the taxpayer identification number of the student for whom the credit is claimed was issued after the due date of the return. The provision applies to returns, and any amendment or supplement to a return, filed after the date of enactment. This primarily impacts nonresident alien students who do not have taxpayer identification numbers prior to the tax filing deadline.
  
  
• Inclusion of institution's Employer Identification Number on Form 8863. Beginning for tax year 2016, taxpayers claiming the AOTC are required to report the EIN of the educational institution to which the taxpayer made qualified payments.
  

Other student/taxpayer provisions:

• Extension of the above-the-line tuition deduction. The provision extends through 2016 the above-the-line deduction for tuition and related expenses for higher education. The deduction is capped at $4,000 for an individual whose AGI does not exceed $65,000 ($130,000 for joint filers) or $2,000 for an individual whose AGI does not exceed $80,000 ($160,000 for joint filers).
  
  
• Improvements to Section 529 tuition savings accounts. The definition of qualified higher education expenses for which tax-preferred distributions from 529 accounts are eligible is expanded to include computer equipment and technology. The provision treats a refund of tuition paid with amounts distributed from a 529 account as a qualified expense if such amounts are re-contributed into a 529 account within 60 days.  

Additional Resources:

• FY16 Omnibus Appropriations Bill Text (as posted Dec. 16, 2015)
   

PERKINS LOAN AGREEMENT
H.R. 3594, the Higher Education Extension Act of 2015 allows current and new undergraduate borrowers to receive new Perkins Loans through September 2017 and additional disbursements of loans through the 2017-2018 school year. For current borrowers, Perkins Loans are available only after exhausting their subsidized Federal Direct Stafford Loan eligibility. New borrowers may receive Perkins Loans after exhausting all their Direct Loan eligibility (subsidized and unsubsidized). The legislation also adds additional disclosures so borrowers are aware of the status of the Perkins Loan program.

Additional Resources:

• H.R. 3594, the Higher Education Extension Act of 2015 (Perkins Loan Extension) Text
• H.R. 3594, the Higher Education Extension Act of 2015 (Perkins Loan Extension) Summary
• NACUBO guidance on preparing for the future of Perkins