College Affordability Act of 2013

To amend the Internal Revenue Code of 1986 to consolidate, with modifications, the Hope Scholarship Credit, the Lifetime Learning Credit, and the American Opportunity Tax Credit, and for other purposes. 1. Short title This Act may be cited as the College Affordability Act of 2013 2. Consolidation of education credits with modifications (a) In general Section 25A 25A. American opportunity tax credit (a) Allowance of credit In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year the amount equal to 100 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished to the eligible student during any academic period beginning in such taxable year) as does not exceed $2,500. (b) Lifetime limitation on aggregate credit In the case of qualified tuition and related expenses with respect to any individual, the aggregate amount of the credits claimed under this section for all taxable years shall not exceed $10,000, determined without regard to whether— (1) such credits are claimed on the return of tax filed by the individual or by another taxpayer, or (2) such expenses are treated as paid by the individual or by another taxpayer. (c) Limitation based on modified adjusted gross income (1) In general The amount which would (but for this subsection) be taken into account under this section for the taxable year shall be reduced (but not below zero) by the amount determined under paragraph (2). (2) Amount of reduction The amount determined under this paragraph is the amount which bears the same ratio to the amount which would be so taken into account as— (A) the excess of— (i) the taxpayer's modified adjusted gross income for such taxable year, over (ii) $80,000 (twice such amount in the case of a joint return), bears to (B) $10,000 ($20,000 in the case of a joint return). (3) Modified adjusted gross income For purposes of this subsection, the term modified adjusted gross income (d) Other limitations (1) Credit allowed for year only if individual is at least ½ time student for portion of year The credit under this section shall not be allowed for a taxable year with respect to the qualified tuition and related expenses of an individual unless such individual is an eligible student for at least one academic period which begins during such year. (2) Denial of credit if student convicted of a felony drug offense The credit under subsection (a) shall not be allowed for qualified tuition and related expenses for the enrollment or attendance of a student for any academic period if such student has been convicted of a Federal or State felony offense consisting of the possession or distribution of a controlled substance before the end of the taxable year with or within which such period ends. (e) Definitions For purposes of this section: (1) Eligible student The term eligible student (A) meets the requirements of section 484(a)(1) of the Higher Education Act of 1965 ( 20 U.S.C. 1091(a)(1) (B) is carrying at least ½ the normal full-time work load for the course of study the student is pursuing. (2) Qualified tuition and related expenses (A) In general The term qualified tuition and related expenses (i) the taxpayer, (ii) the taxpayer's spouse, or (iii) any dependent of the taxpayer with respect to whom the taxpayer is allowed a deduction under section 151, at an eligible educational institution for courses of instruction of such individual at such institution. (B) Exception for education involving sports, etc Such term does not include expenses with respect to any course or other education involving sports, games, or hobbies, unless such course or other education is part of the individual's degree program. (C) Exception for nonacademic fees Such term does not include student activity fees, athletic fees, insurance expenses, or other expenses unrelated to an individual's academic course of instruction. (3) Eligible educational institution The term eligible educational institution (A) which is described in section 481 of the Higher Education Act of 1965, as in effect on August 5, 1997, and (B) which is eligible to participate in a program under title IV of such Act. (f) Other limitations and special rules For purposes of this section: (1) Identification requirement No credit shall be allowed under this section to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year. (2) Adjustment for certain scholarships, etc (A) In general The amount of qualified tuition and related expenses otherwise taken into account under this section with respect to an individual for an academic period shall be reduced (before the application of subsections (a) and (c)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as— (i) a qualified scholarship which is excludable from gross income under section 117, (ii) an educational assistance allowance under chapter 30, 31, 32, 34, or 35 of title 38, United States Code, or under chapter 1606 (iii) a payment (other than a gift, bequest, devise, or inheritance within the meaning of section 102(a)) for such individual's educational expenses, or attributable to such individual's enrollment at an eligible educational institution, which is excludable from gross income under any law of the United States. (B) Coordination with pell grants not used for qualified tuition and related expenses Any amount determined with respect to an individual under subparagraph (A) which is attributable to a Federal Pell Grant under section 401 of the Higher Education Act of 1965 shall be reduced (but not below zero) by the amount of the expenses (other than qualified tuition and related expenses) which are taken into account in determining the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, as in effect on the date of the enactment of this subparagraph) of such individual at an eligible educational institution for the academic period for which the credit under this section is being determined. (3) Treatment of expenses paid by dependent If a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins— (A) no credit shall be allowed under this section to such individual for such individual's taxable year, and (B) qualified tuition and related expenses paid by such individual during such individual's taxable year shall be treated for purposes of this section as paid by such other taxpayer. (4) Treatment of certain prepayments If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year. (5) Denial of double benefit No credit shall be allowed under this section for any expense for which a deduction is allowed under any other provision of this chapter. (6) No credit for married individuals filing separate returns If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year. (7) Nonresident aliens If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. (g) Portion of credit refundable (1) In general 80 percent of the amount which would (but for this subsection and section 26) be allowed as a credit allowed under this section for the taxable year shall be treated as a credit allowable under subpart C (and not allowed under this section). The preceding sentence shall not apply to any taxpayer for any taxable year if such taxpayer is a child to whom subsection (g) of section 1 applies for such taxable year. (2) Maximum amount refundable The amount treated by paragraph (1) as a credit allowable under subpart C for any taxable year shall not exceed $1,500. (h) Inflation adjustments (1) In general In the case of taxable years beginning after 2014, the $2,500 and $3,000 amounts in subsection (a), the $10,000 amount in subsection (b), the $80,000 amount in subsection (c)(2)(A)(ii), and the $1,500 in subsection (g)(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 2013 calendar year 1992 (2) Rounding (A) In general If the $1,500, $2,500, $3,000, or $10,000 amount as adjusted under paragraph (1) is not a multiple of $100, such amount shall be rounded to the next lowest multiple of $100. (B) $80,000 If the $80,000 amount as adjusted under paragraph (1) is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000. (i) Election not To have section apply A taxpayer may elect not to have this section apply with respect to the qualified tuition and related expenses of an individual for any taxable year. (j) Regulations The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations providing for a recapture of the credit allowed under this section in cases where there is a refund in a subsequent taxable year of any amount which was taken into account in determining the amount of such credit. (k) Pilot program To make periodic payments as college expenses incurred (1) In general The Secretary of the Treasury and the Secretary of Education shall jointly establish a program designed to make payments periodically to or on behalf of an eligible student as the student incurs qualified expenses during the taxable year. The total amount that may be so paid to or on behalf of an eligible student through this program shall not exceed the credit which would (but for paragraph (2)) be allowable under this section if subsection (c) were applied by using the taxpayer’s modified adjusted gross income for the preceding taxable year. (2) Credit reduced by pilot program payments The credit allowable under this section (without regard to this paragraph) for any taxable year shall be reduced (but not below zero) by the payments made with respect to a student under paragraph (1) for expenses which would otherwise be taken into account in determining the credit under this section for such year. (3) Program participation Participation in the program established under this subsection shall be voluntary with respect to both students and educational institutions; except that, institutions which are taxable under this chapter (other than by reason of section 511) may not participate in such program. (4) Program period The program established under this subsection shall apply to expenses for academic periods beginning during the 5-year period which begins on the date which is 1 year after the date of the enactment of this subsection. (5) Payments not treated as resources for financial aid Payments made under this subsection shall not be treated as resources for purposes of determining the amount of any financial aid which is funded in whole or part with Federal funds. Payments under the program shall not be made in a manner that would reduce the State, private, or institutional aid available to an eligible student. (6) Notice of program Educational institutions participating in the program established under this subsection shall provide appropriate notices to parents and students of the option of payments under such program. Such notices shall not be considered tax advice for purposes of any Federal law or regulation. (7) Reporting The Secretary of the Treasury and the Secretary of Education shall jointly submit annual reports to Congress on the program established under this subsection, together with any recommendations with respect to such program. . (b) Clerical amendment The item relating to section 25A in the table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended to read as follows: Sec. 25A. American Opportunity Tax Credit. . (c) Conforming amendments (1) Subparagraph (B) of section 72(t)(7) of such Code is amended by striking 25A(g)(2) 25A(f)(2) (2) Paragraph (2) of section 221(d) of such Code is amended— (A) by striking 25A(g)(2) 25A(f)(2) (B) by striking 25A(f)(2) 25A(e)(3) (3) Paragraph (3) of section 221(d) of such Code is amended by striking 25A(b)(3) 25A(e)(1) (4) Paragraph (1) of section 222(d) of such Code is amended— (A) by striking 25A(f) 25A(e)(2) (B) by striking 25A(g)(2) 25A(f)(2) (5) Clause (v) of section 529(c)(3)(B) of such Code is amended— (A) by striking 25A(g)(2) 25A(f)(2) (B) by striking Hope and Lifetime Learning credits American Opportunity Tax Credit (6) Clause (i) of section 529(e)(3)(B) of such Code is amended by striking 25A(b)(3) 25A(e)(1) (7) Subparagraph (C) of section 530(d)(2) of such Code is amended— (A) by striking 25A(g)(2) 25A(f)(2) (B) by striking Hope and Lifetime Learning credits American Opportunity Tax Credit (8) Clause (iii) of section 530(d)(4)(B) of such Code is amended by striking 25A(g)(2) 25A(f)(2) (9) Section 1400O of such Code is amended— (A) by striking 25A(f)(2) 25A(e)(3) (B) by inserting (as in effect on the date of the enactment of this section) 25A(b)(1) (C) by inserting (as in effect on the date of the enactment of this section) 25A(c)(1) (10) Subsection (e) of section 6050S of such Code is amended by striking subsection (g)(2) subsection (f)(2) (11) Subparagraph (A) of section 6211(b)(4) of such Code is amended by striking subsection (i)(6) subsection (g) (12) Subparagraph (J) of section 6213(g)(2) of such Code is amended by striking 25A(g)(1) 25A(f)(1) (d) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2013. 3. Expansion of pell grant exclusion from gross income (a) In general Paragraph (1) of section 117(b) 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 ( 20 U.S.C. 1070a . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2013. 4. Increased public awareness of american opportunity tax credit The Secretary of the Treasury, or the Secretary's delegate, in consultation with the Secretary of Education, shall establish a taxpayer awareness program to inform the taxpaying public of the availability of the American Opportunity Tax Credit allowed under section 25A

Summary: College Affordability Act of 2013 - Amends the Internal Revenue Code to replace the Hope Scholarship and Lifetime Learning tax credits with a new American Opportunity Tax Credit that allows: (1) a 100% income tax credit, up to $2,500 in a taxable year, of the qualified tuition and related expenses (i.e., tuition, fees, and course materials) of a student at an institution of higher education who is carrying at least one half of a normal full-time work load; (2) a life-time aggregate credit amount of up to $10,000; and (3) refundability of a portion of such credit. Denies such credit to students who are convicted of a federal or state felony offense involving the possession or distribution of a controlled substance. Allows an exclusion from gross income of any amount received as a Federal Pell Grant. Establishes programs for: (1) periodic payments to students as qualified expenses are incurred during the taxable year, and (2) informing the public of the availability of the American Opportunity Tax Credit.