Tax-Free Pell Grant Act

To amend the Internal Revenue Code of 1986 to expand the exclusion of Pell Grants from gross income, and for other purposes. 1. Short title This Act may be cited as the Tax-Free Pell Grant Act 2. Expansion of Pell Grant exclusion from gross income (a) In general Paragraph section 117(b)(1) received by an individual received by an individual— (A) as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses, or (B) as a Federal Pell Grant under section 401 of the Higher Education Act of 1965 (as in effect on the date of the enactment of the Tax-Free Pell Grant Act . (b) No adjustment under American Opportunity and Lifetime Learning Credits Section 25A(g)(2)(A) of such Code is amended by striking a qualified scholarship which a qualified scholarship which is described in section 117(b)(1)(A) and which (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2020. 3. Expansion of American Opportunity and Lifetime Learning Credits (a) In general Section 25A (1) in subsection (f)(1)— (A) in subparagraph (A), by striking tuition and fees tuition, fees, computer or peripheral equipment, child and dependent care expenses, and course materials (B) by striking subparagraph (D), and (C) by adding at the end the following new subparagraphs: (D) Child and dependent care expenses For purposes of this paragraph— (i) In general The term child and dependent care expenses (I) expenses for household services, and (II) expenses for the care of a qualifying individual. Such term shall not include any amount paid for services outside the taxpayer’s household at a camp where the qualifying individual stays overnight. (ii) Qualifying individual The term qualifying individual (iii) Exception, dependent care centers Rules similar to the rules of subparagraphs (B), (C), and (D) of section 21(b)(2) shall apply, except the term child and dependent care expenses employment-related expenses (E) Child and dependent care expenses only qualified expenses when claimed by eligible student Amounts paid for an expense described in subparagraph (E) may not be taken into account under this paragraph for a taxable year unless required for the enrollment or attendance of an individual described in subparagraph (A)(i) or subparagraph (A)(ii). (F) Computer or peripheral equipment (i) Defined For purposes of this paragraph, the term computer or peripheral equipment (ii) Dollar limit on amount creditable The aggregate of the amounts paid or expenses incurred for computer or peripheral equipment which may be taken into account under this paragraph for a taxable year by the taxpayer shall not exceed $1,000. , and (2) in subsection (g)(5)— (A) in the heading, by adding or credit (B) by inserting or credit a deduction (b) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2020.

Summary: Tax-Free Pell Grant Act This bill excludes from gross income, for income tax purposes, any amount received as a federal Pell Grant. It also expands the definition of qualified tuition and related expenses under the American Opportunity and Lifetime Learning tax credit to include computer or peripheral equipment (up to a maximum of $1,000), child and dependent care expenses, and course materials.