Endowment tax
Topic: Finance
From HandWiki - Reading time: 5 min
Endowment tax is the taxation of financial endowments in the United States. Previous to 2018, these endowments were not taxed due to their charitable, educational, or religious mission. Endowments can be up to several billion dollars at some universities, some charitable foundations, and some medical foundations. Several institutions have endowment/student ratio of >$1M. It is these endowments that are targeted.[1]
Endowment taxation
Unlike nonprofit corporations classified as a public charity, private foundations in the United States are generally subject to a 1% or 2% excise tax on any net investment income.[2][3] As enacted in the Tax Cuts and Jobs Act of 2017 and amended by the Bipartisan Budget Act of 2018, an excise tax of 1.4% on endowment income is levied on universities that have at least 500 tuition-paying students and net assets of at least $500,000 per student. The $500,000 is not adjusted for inflation, so the threshold is effectively lowered over time.[4] The 2018 endowment tax impacted the 53 wealthiest schools. It was in line with what most other philanthropic charities pay in excise taxes.[5]
Proposed changes in 2026
The endowment tax will be expanded in 2026. The tax would be more aggressive. Again, it is levied on endowment income (not endowment per se) plus royalties, etc. The level of taxation will be tiered, based on the endowment/student ratio.[1]
- 8% rate at schools with ≥$2M/student, which would apply to Harvard, Stanford, Princeton, Yale and MIT.
- 4% rate for schools with $750,000 to $2M/student, which would apply to Rice University, University of Notre Dame, Dartmouth College, and others
- 1.4% rate for schools with $500,000 to $750,000/student
The 2026 legislation would apply to private institutions with > 3,000 students. Only U.S. students count.[6] Some of the most strongly affected institutions are:
| Institution | Enrollment<[7] (FTE – fall 2023) |
Endowment per student[7] (USD – FY2024) | |
|---|---|---|---|
| Princeton University | 9,079 | $3,750,669 | |
| Yale University | 15,269 | $2,714,107 | |
| Stanford University | 17,623 | $2,135,335 | |
| Harvard University | 24,357 | $2,133,974 | |
| Massachusetts Institute of Technology | 11,777 | $2,086,500 | |
| University of Notre Dame | 12,785 | $1,399,873 | |
| Dartmouth College | 6,700 | $1,234,823 |
The first five institutions each would pay hundreds of millions each in additional taxes according to the 2026 law.
Criticism
The endowment tax provision of the Tax Cuts and Jobs Act was criticized as funding tax breaks for corporations and the wealthy at the expense of education.[8][9] The more aggressive 2025 tax has been described as a "scholarship tax.”[1]
See also
- List of colleges and universities in the United States by endowment
- Payment in lieu of taxes
References
- ↑ 1.0 1.1 1.2 "Republican Plan to Tax Elite Colleges Could Hit in Unexpected Places". New York Times. https://www.nytimes.com/2025/05/20/us/universities-endowment-tax-republicans.html.
- ↑ "Internal Revenue Manual - 7.26.1 Introduction to Private Foundations and Special Rules Under IRC 508". https://www.irs.gov/irm/part7/irm_07-026-001.html.
- ↑ Glossary of Philanthropic Terms. (n.d.). Retrieved November 5, 2014, from http://dearborncf.org/glossary.aspx
- ↑ "Wealthy colleges face uncertainty as they seek ways to avoid new endowment tax" (in en). https://www.insidehighered.com/news/2018/01/02/wealthy-colleges-face-uncertainty-they-seek-ways-avoid-new-endowment-tax.
- ↑ "The University Endowment Income Tax: Who Will Pay it and Why Was it Implemented? | Econofact" (in en-US). 2018-01-25. https://econofact.org/the-university-endowment-tax-who-will-pay-it-and-why-was-it-implemented.
- ↑ "College endowment tax is leading to hiring freezes and could mean cuts in financial aid". https://www.pbs.org/newshour/education/college-endowment-tax-is-leading-to-hiring-freezes-and-could-mean-cuts-in-financial-aid.
- ↑ 7.0 7.1 "U.S. and Canadian 2024 NCSE Participating Institutions Listed by Fiscal Year 2024 Endowment Market Value, Change in Market Value from FY23 to FY24, and FY24 Endowment Market Values Per Full-time Equivalent Student" (XLSX). National Association of College and University Business Officers (NACUBO). February 12, 2025. https://edge.sitecorecloud.io/nacubo1-nacubo-prd-dc8b/media/Nacubo/Documents/EndowmentFiles/2024-NCSE-Endowment-Market-Values-for-US-and-Canadian-Institutions-FINAL-Feb-12-2025.xlsx.
- ↑ "End the Endowment Tax". The Harvard Crimson. 20 February 2018. https://www.thecrimson.com/article/2018/2/20/editorial-end-endowment-tax/. Retrieved 29 March 2020.
- ↑ Wilson, John. "Why the Endowment Tax Is Unconstitutional". https://www.insidehighered.com/views/2018/01/16/tax-college-endowment-unconstitutionally-targets-institutions-opinion. Retrieved 29 March 2020.
 |  |
EncycloReader
is supported by the 
KSF