Tax-Free Pell Grant Act

This bill would make Pell Grants tax-free, so students wouldn’t have to count them as income on their taxes. It would also let students and families claim the American Opportunity or Lifetime Learning tax credits without losing out because they received a Pell Grant. The bill expands what counts as covered education costs for these credits to include course materials, computers and related equipment, internet service (up to $1,000 a year for hardware), and certain child or dependent care costs needed so the student can attend school. Overnight camps would not count. These changes would start with the 2025 tax year .

Key points

• Who is affected: Students receiving Pell Grants and people claiming the American Opportunity or Lifetime Learning tax credits.
• What changes: Pell Grants wouldn’t be taxed or reduce your education tax credits; credits could cover books, computers, internet, and needed child/dependent care (hardware capped at $1,000/year) .
• When: Applies to tax years beginning after December 31, 2024 (the 2025 tax year) .