Tax-Free Pell Grant Act
Bill: S.2455 | Sponsor: Sen. Whitehouse, Sheldon (D-RI)
Policy area: Taxation

Summary:
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.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Tax-Free Pell Grant Act''.

SEC. 2. EXPANSION OF PELL GRANT EXCLUSION FROM GROSS INCOME.

    (a) In General.--Paragraph section 117(b)(1) of the Internal 
Revenue Code of 1986 is amended by striking ``received by an 
individual'' and all that follows and inserting ``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'' and inserting ``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.

SEC. 3. EXPANSION OF AMERICAN OPPORTUNITY AND LIFETIME LEARNING 
              CREDITS.

    (a) In General.--Section 25A of the Internal Revenue Code of 1986 
is amended--
            (1) in subsection (f)(1)--
                    (A) in subparagraph (A), by striking ``tuition and 
                fees'' inserting ``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' means amounts paid for 
                        the following expenses, but only if such 
                        expenses are incurred to enable the taxpayer to 
                        be enrolled in an eligible educational 
                        institution for any period for which there are 
                        1 or more qualifying individuals with respect 
                        to the taxpayer:
                                    ``(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' has the meaning given 
                        such term in section 21(b)(1).
                            ``(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' shall be 
                        substituted for the term `employment-related 
                        expenses' each place it appears in such 
                        subparagraphs.
                    ``(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' means expenses for the purchase of 
                        computer or peripheral equipment (as defined in 
                        section 168(i)(2)(B), computer software (as 
                        defined in section 197(e)(3)(B))), or internet 
                        access and related services, if such equipment, 
                        software, or services are to be used primarily 
                        by the individual during any of the years the 
                        individual is enrolled at an eligible 
                        educational institution.
                            ``(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'' at the 
                end, and
                    (B) by inserting ``or credit'' after ``a 
                deduction''.
    (b) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2020.
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