SEC. 70411. Tax credit for contributions of individuals to scholarship granting organizations.
(a) Allowance of credit for contributions of individuals to scholarship granting organizations.—
(1) IN GENERAL.—Subpart A of part IV of subchapter A of chapter 1 is amended by inserting after section 25E the following new section:
“SEC. 25F. Qualified elementary and secondary education scholarships.
“(a) Allowance of credit.—In the case of an individual who is a citizen or resident of the United States (within the meaning of section 7701(a)(9)), there shall be allowed as a credit against the tax imposed by this chapter for the taxable year an amount equal to the aggregate amount of qualified contributions made by the taxpayer during the taxable year.
“(b) Limitations.—
“(1) IN GENERAL.—The credit allowed under subsection (a) to any taxpayer for any taxable year shall not exceed $1,700.
“(2) REDUCTION BASED ON STATE CREDIT.—The amount allowed as a credit under subsection (a) for a taxable year shall be reduced by the amount allowed as a credit on any State tax return of the taxpayer for qualified contributions made by the taxpayer during the taxable year.
“(c) Definitions.—For purposes of this section—
“(1) COVERED STATE.—The term ‘covered State’ means one of the States, or the District of Columbia, that, for a calendar year, voluntarily elects to participate under this section and to identify scholarship granting organizations in the State, in accordance with subsection (g).
“(2) ELIGIBLE STUDENT.—The term ‘eligible student’ means an individual who—
“(A) is a member of a household with an income which, for the calendar year prior to the date of the application for a scholarship, is not greater than 300 percent of the area median gross income (as such term is used in section 42), and
“(B) is eligible to enroll in a public elementary or secondary school.
“(3) QUALIFIED CONTRIBUTION.—The term ‘qualified contribution’ means a charitable contribution of cash to a scholarship granting organization that uses the contribution to fund scholarships for eligible students solely within the State in which the organization is listed pursuant to subsection (g).
“(4) QUALIFIED ELEMENTARY OR SECONDARY EDUCATION EXPENSE.—The term ‘qualified elementary or secondary education expense’ means any expense of an eligible student which is described in section 530(b)(3)(A).
“(5) SCHOLARSHIP GRANTING ORGANIZATION.—The term ‘scholarship granting organization’ means any organization—
“(A) which—
“(i) is described in section 501(c)(3) and exempt from tax under section 501(a), and
“(ii) is not a private foundation,
“(B) which prevents the co-mingling of qualified contributions with other amounts by maintaining one or more separate accounts exclusively for qualified contributions,
“(C) which satisfies the requirements of subsection (d), and
“(D) which is included on the list submitted for the applicable covered State under subsection (g) for the applicable year.
“(d) Requirements for scholarship granting organizations.—
“(1) IN GENERAL.—An organization meets the requirements of this subsection if—
“(A) such organization provides scholarships to 10 or more students who do not all attend the same school,
“(B) such organization spends not less than 90 percent of the income of the organization on scholarships for eligible students,
“(C) such organization does not provide scholarships for any expenses other than qualified elementary or secondary education expenses,
“(D) such organization provides a scholarship to eligible students with a priority for—
“(i) students awarded a scholarship the previous school year, and
“(ii) after application of clause (i), any eligible students who have a sibling who was awarded a scholarship from such organization,
“(E) such organization does not earmark or set aside contributions for scholarships on behalf of any particular student, and
“(F) such organization—
“(i) verifies the annual household income and family size of eligible students who apply for scholarships to ensure such students meet the requirement of subsection (c)(2)(A), and
“(ii) limits the awarding of scholarships to eligible students who are a member of a household for which the income does not exceed the amount established under subsection (c)(2)(A).
“(2) PROHIBITION ON SELF-DEALING.—
“(A) IN GENERAL.—A scholarship granting organization may not award a scholarship to any disqualified person.
“(B) DISQUALIFIED PERSON.—For purposes of this paragraph, a disqualified person shall be determined pursuant to rules similar to the rules of section 4946.
“(e) Denial of double benefit.—Any qualified contribution for which a credit is allowed under this section shall not be taken into account as a charitable contribution for purposes of section 170.
“(f) Carryforward of unused credit.—
“(1) IN GENERAL.—If the credit allowable under subsection (a) for any taxable year exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of the credits allowable under this subpart (other than this section, section 23, and section 25D), such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year.
“(2) LIMITATION.—No credit may be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the credit arose. For purposes of the preceding sentence, credits shall be treated as used on a first-in first-out basis.
“(g) State list of scholarship granting organizations.—
“(1) LIST.—
“(A) IN GENERAL.—Not later than January 1 of each calendar year (or, with respect to the first calendar year for which this section applies, as early as practicable), a State that voluntarily elects to participate under this section shall provide to the Secretary a list of the scholarship granting organizations that meet the requirements described in subsection (c)(5) and are located in the State.
“(B) PROCESS.—The election under this paragraph shall be made by the Governor of the State or by such other individual, agency, or entity as is designated under State law to make such elections on behalf of the State with respect to Federal tax benefits.
“(2) CERTIFICATION.—Each list submitted under paragraph (1) shall include a certification that the individual, agency, or entity submitting such list on behalf of the State has the authority to perform this function.
“(h) Regulations and guidance.—The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this section, including regulations or other guidance—
“(1) providing for enforcement of the requirements under subsections (d) and (g), and
“(2) with respect to recordkeeping or information reporting for purposes of administering the requirements of this section.”.
(2) CONFORMING AMENDMENTS.—
(A) Section 25(e)(1)(C) is amended by striking “and 25D” and inserting “25D, and 25F”.
(B) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 25E the following new item:
“Sec. 25F. Qualified elementary and secondary education scholarships. ”.
(b) Exclusion from gross income for scholarships for qualified elementary or secondary education expenses of eligible students.—
(1) IN GENERAL.—Part III of subchapter B of chapter 1 is amended by inserting before section 140 the following new section:
“SEC. 139K. Scholarships for qualified elementary or secondary education expenses of eligible students.
“(a) In general.—In the case of an individual, gross income shall not include any amounts provided to such individual or any dependent of such individual pursuant to a scholarship for qualified elementary or secondary education expenses of an eligible student which is provided by a scholarship granting organization.
“(b) Definitions.—In this section, the terms ‘qualified elementary or secondary education expense’, ‘eligible student’, and ‘scholarship granting organization’ have the same meaning given such terms under section 25F(c).”.
(2) CONFORMING AMENDMENT.—The table of sections for part III of subchapter B of chapter 1 is amended by inserting before the item relating to section 140 the following new item:
“Sec. 139K. Scholarships for qualified elementary or secondary education expenses of eligible students. ”.
(c) Effective date.—
(1) IN GENERAL.—Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years ending after December 31, 2026.
(2) EXCLUSION FROM GROSS INCOME.—The amendments made by subsection (b) shall apply to amounts received after December 31, 2026, in taxable years ending after such date.
SEC. 70412. Exclusion for employer payments of student loans.
(a) In general.—Section 127(c)(1)(B) is amended by striking “in the case of payments made before January 1, 2026,”.
(b) Inflation adjustment.—Section 127 is amended—
(1) by redesignating subsection (d) as subsection (e), and
(2) by inserting after subsection (c) the following new subsection:
“(d) Inflation adjustment.—
“(1) IN GENERAL.—In the case of any taxable year beginning after 2026, both of the $5,250 amounts in subsection (a)(2) shall each be increased by an amount equal to—
“(A) such dollar amount, multiplied by
“(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2025’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
“(2) ROUNDING.—If any increase under paragraph (1) is not a multiple of $50, such increase shall be rounded to the nearest multiple of $50.”.
(c) Effective date.—The amendment made by this section shall apply to payments made after December 31, 2025.
SEC. 70413. Additional expenses treated as qualified higher education expenses for purposes of 529 accounts.
(a) In general.—
(1) IN GENERAL.—Section 529(c)(7) is amended to read as follows:
“(7) TREATMENT OF ELEMENTARY AND SECONDARY TUITION.—Any reference in this section to the term ‘qualified higher education expense’ shall include a reference to the following expenses in connection with enrollment or attendance at, or for students enrolled at or attending, an elementary or secondary public, private, or religious school:
“(A) Tuition.
“(B) Curriculum and curricular materials.
“(C) Books or other instructional materials.
“(D) Online educational materials.
“(E) Tuition for tutoring or educational classes outside of the home, including at a tutoring facility, but only if the tutor or instructor is not related to the student and—
“(i) is licensed as a teacher in any State,
“(ii) has taught at an eligible educational institution, or
“(iii) is a subject matter expert in the relevant subject.
“(F) Fees for a nationally standardized norm-referenced achievement test, an advanced placement examination, or any examinations related to college or university admission.
“(G) Fees for dual enrollment in an institution of higher education.
“(H) Educational therapies for students with disabilities provided by a licensed or accredited practitioner or provider, including occupational, behavioral, physical, and speech-language therapies.”.
(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to distributions made after the date of the enactment of this Act.
(b) Increase in limitation.—
(1) IN GENERAL.—The last sentence of section 529(e)(3) is amended by striking “$10,000” and inserting “$20,000”.
(2) EFFECTIVE DATE.—The amendment made by this subsection shall apply to taxable years beginning after December 31, 2025.
SEC. 70414. Certain postsecondary credentialing expenses treated as qualified higher education expenses for purposes of 529 accounts.
(a) In general.—Section 529(e)(3) is amended by adding at the end the following new subparagraph:
“(C) CERTAIN POSTSECONDARY CREDENTIALING EXPENSES.—The term ‘qualified higher education expenses’ includes qualified postsecondary credentialing expenses (as defined in subsection (f)).”.
(b) Qualified postsecondary credentialing expenses.—Section 529 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:
“(f) Qualified postsecondary credentialing expenses.—For purposes of this section—
“(1) IN GENERAL.—The term ‘qualified postsecondary credentialing expenses’ means—
“(A) tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary in a recognized postsecondary credential program, or any other expense incurred in connection with enrollment in or attendance at a recognized postsecondary credential program if such expense would, if incurred in connection with enrollment or attendance at an eligible educational institution, be covered under subsection (e)(3)(A),
“(B) fees for testing if such testing is required to obtain or maintain a recognized postsecondary credential, and
“(C) fees for continuing education if such education is required to maintain a recognized postsecondary credential.
“(2) RECOGNIZED POSTSECONDARY CREDENTIAL PROGRAM.—The term ‘recognized postsecondary credential program’ means any program to obtain a recognized postsecondary credential if—
“(A) such program is included on a State list prepared under section 122(d) of the Workforce Innovation and Opportunity Act (29 U.S.C. 3152(d)),
“(B) such program is listed in the public directory of the Web Enabled Approval Management System (WEAMS) of the Veterans Benefits Administration, or successor directory such program,
“(C) an examination (developed or administered by an organization widely recognized as providing reputable credentials in the occupation) is required to obtain or maintain such credential and such organization recognizes such program as providing training or education which prepares individuals to take such examination, or
“(D) such program is identified by the Secretary, after consultation with the Secretary of Labor, as being a reputable program for obtaining a recognized postsecondary credential for purposes of this subparagraph.
“(3) RECOGNIZED POSTSECONDARY CREDENTIAL.—The term ‘recognized postsecondary credential’ means—
“(A) any postsecondary employment credential that is industry recognized and is—
“(i) any postsecondary employment credential issued by a program that is accredited by the Institute for Credentialing Excellence, the National Commission on Certifying Agencies, or the American National Standards Institute,
“(ii) any postsecondary employment credential that is included in the Credentialing Opportunities On-Line (COOL) directory of credentialing programs (or successor directory) maintained by the Department of Defense or by any branch of the Armed Forces, or
“(iii) any postsecondary employment credential identified for purposes of this clause by the Secretary, after consultation with the Secretary of Labor, as being industry recognized,
“(B) any certificate of completion of an apprenticeship that is registered and certified with the Secretary of Labor under the Act of August 16, 1937 (commonly known as the ‘National Apprenticeship Act’; 50 Stat. 664, chapter 663; 29 U.S.C. 50 et seq.),
“(C) any occupational or professional license issued or recognized by a State or the Federal Government (and any certification that satisfies a condition for obtaining such a license), and
“(D) any recognized postsecondary credential as defined in section 3(52) of the Workforce Innovation and Opportunity Act (29 U.S.C. 3102(52)), provided through a program described in paragraph (2)(A).”.
(c) Effective date.—The amendments made by this section shall apply to distributions made after the date of the enactment of this Act.
SEC. 70415. Modification of excise tax on investment income of certain private colleges and universities.
(a) In general.—Section 4968 is amended to read as follows:
“SEC. 4968. Excise tax based on investment income of private colleges and universities.
“(a) Tax imposed.—There is hereby imposed on each applicable educational institution for the taxable year a tax equal to the applicable percentage of the net investment income of such institution for the taxable year.
“(b) Applicable percentage.—For purposes of this section, the term ‘applicable percentage’ means—
“(1) 1.4 percent in the case of an institution with a student adjusted endowment of at least $500,000, and not in excess of $750,000,
“(2) 4 percent in the case of an institution with a student adjusted endowment in excess of $750,000, and not in excess of $2,000,000, and
“(3) 8 percent in the case of an institution with a student adjusted endowment in excess of $2,000,000.
“(c) Applicable educational institution.—For purposes of this subchapter, the term ‘applicable educational institution’ means an eligible educational institution (as defined in section 25A(f)(2))—
“(1) which had at least 3,000 tuition-paying students during the preceding taxable year,
“(2) more than 50 percent of the tuition-paying students of which are located in the United States,
“(3) the student adjusted endowment of which is at least $500,000, and
“(4) which is not described in the first sentence of section 511(a)(2)(B) (relating to State colleges and universities).
“(d) Student adjusted endowment.—For purposes of this section, the term ‘student adjusted endowment’ means, with respect to any institution for any taxable year—
“(1) the aggregate fair market value of the assets of such institution (determined as of the end of the preceding taxable year), other than those assets which are used directly in carrying out the institution’s exempt purpose, divided by
“(2) the number of students of such institution.
“(e) Determination of number of students.—For purposes of subsections (c) and (d), the number of students of an institution (including for purposes of determining the number of students at a particular location) shall be based on the daily average number of full-time students attending such institution (with part-time students taken into account on a full-time student equivalent basis).
“(f) Net investment income.—For purposes of this section—
“(1) IN GENERAL.—Net investment income shall be determined under rules similar to the rules of section 4940(c).
“(2) OVERRIDE OF CERTAIN REGULATORY EXCEPTIONS.—
“(A) STUDENT LOAN INTEREST.—Net investment income shall be determined by taking into account any interest income from a student loan made by the applicable educational institution (or any related organization) as gross investment income.
“(B) FEDERALLY-SUBSIDIZED ROYALTY INCOME.—
“(i) IN GENERAL.—Net investment income shall be determined by taking into account any Federally-subsidized royalty income as gross investment income.
“(ii) FEDERALLY-SUBSIDIZED ROYALTY INCOME.—For purposes of this subparagraph—
“(I) IN GENERAL.—The term ‘Federally-subsidized royalty income’ means any otherwise-regulatory-exempt royalty income if any Federal funds were used in the research, development, or creation of the patent, copyright, or other intellectual or intangible property from which such royalty income is derived.
“(II) OTHERWISE-REGULATORY-EXEMPT ROYALTY INCOME.—For purposes of this subparagraph, the term ‘otherwise-regulatory-exempt royalty income’ means royalty income which (but for this subparagraph) would not be taken into account as gross investment income by reason of being derived from patents, copyrights, or other intellectual or intangible property which resulted from the work of students or faculty members in their capacities as such with the applicable educational institution.
“(III) FEDERAL FUNDS.—The term ‘Federal funds’ includes any grant made by, and any payment made under any contract with, any Federal agency to the applicable educational institution, any related organization, or any student or faculty member referred to in subclause (II).
“(g) Assets and net investment income of related organizations.—
“(1) IN GENERAL.—For purposes of subsections (d) and (f), assets and net investment income of any related organization with respect to an educational institution shall be treated as assets and net investment income, respectively, of the educational institution, except that—
“(A) no such amount shall be taken into account with respect to more than 1 educational institution, and
“(B) unless such organization is controlled by such institution or is described in section 509(a)(3) with respect to such institution for the taxable year, assets and net investment income which are not intended or available for the use or benefit of the educational institution shall not be taken into account.
“(2) RELATED ORGANIZATION.—For purposes of this subsection, the term ‘related organization’ means, with respect to an educational institution, any organization which—
“(A) controls, or is controlled by, such institution,
“(B) is controlled by 1 or more persons which also control such institution, or
“(C) is a supported organization (as defined in section 509(f)(3)), or an organization described in section 509(a)(3), during the taxable year with respect to such institution.
“(h) Regulations.—The Secretary shall prescribe such regulations or other guidance as may be necessary to prevent avoidance of the tax under this section, including regulations or other guidance to prevent avoidance of such tax through the restructuring of endowment funds or other arrangements designed to reduce or eliminate the value of net investment income or assets subject to the tax imposed by this section.”.
(b) Requirement to report certain information with respect to application of excise tax based on investment income of private colleges and universities.—Section 6033 is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:
“(o) Requirement to report certain information with respect to excise tax based on investment income of private colleges and universities.—Each applicable educational institution described in section 4968(c) which is subject to the requirements of subsection (a) shall include on the return required under subsection (a)—
“(1) the number of tuition-paying students taken into account under section 4968(c), and
“(2) the number of students of such institution (determined under the rules of section 4968(e)).”.
(c) Effective date.—The amendments made by this section shall apply to taxable years beginning after December 31, 2025.
SEC. 70416. Expanding application of tax on excess compensation within tax-exempt organizations.
(a) In general.—Section 4960(c)(2) is amended to read as follows:
“(2) COVERED EMPLOYEE.—For purposes of this section, the term ‘covered employee’ means any employee of an applicable tax-exempt organization (or any predecessor of such an organization) and any former employee of such an organization (or predecessor) who was such an employee during any taxable year beginning after December 31, 2016.”.
(b) Effective date.—The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 2025.