Expand American Educational Opportunity Act of 2021
Bill: H.R.4174 | Sponsor: Rep. Doggett, Lloyd (D-TX)
Policy area: Taxation

Summary:
Expand American Educational Opportunity Act of 2021
This bill replaces the Hope Scholarship and Lifetime Learning tax credits with a modified American Opportunity Tax Credit that (1) allows an income tax credit of up to $2,500 of the qualified tuition and related expenses of a student who is carrying at least one half of a normal course load, (2) allows a lifetime dollar limitation for the credit of $15,000 for all taxable years, and (3) increases the refundable portion of the credit to a maximum of $1,500.
The bill defines qualified tuition and related expenses as tuition, fees, computer or peripheral equipment, child and dependent care expenses, and course materials for the taxpayer, the taxpayer's spouse, and dependents at certain postsecondary educational institutions.
The bill also allows an exclusion from gross income, for income tax purposes, of any amount received as a Federal Pell Grant.

To amend the Internal Revenue Code of 1986 to extend and modify the 
        American Opportunity Tax Credit, 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 ``Expand American Educational 
Opportunity Act of 2021''.

SEC. 2. EXTENSION AND MODIFICATION OF AMERICAN OPPORTUNITY TAX CREDIT.

    (a) In General.--Section 25A of the Internal Revenue Code of 1986 
is amended to read as follows:

``SEC. 25A. AMERICAN OPPORTUNITY TAX CREDIT.

    ``(a) Allowance of Credit.--In the case of an individual who is an 
eligible student for any taxable year, there shall be allowed as a 
credit against the tax imposed by this chapter for such taxable year 
the amount determined under subsection (b) with respect to such 
individual.
    ``(b) Amount of Credit.--
            ``(1) Student enrolled at least \1/2\ time.--In the case of 
        an eligible student who is carrying at least \1/2\ the normal 
        full-time workload for the course of study the student is 
        pursuing, the amount determined under this subsection with 
        respect to such individual is the sum of--
                    ``(A) 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 $2,000, plus
                    ``(B) 25 percent of such expenses so paid as 
                exceeds $2,000 but does not exceed $4,000.
            ``(2) Other students.--In the case of an eligible student 
        not described in paragraph (1), the amount determined under 
        this subsection with respect to such individual is 25 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 $10,000.
    ``(c) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) In general.--The amount which would (but for this 
        paragraph) 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 ($160,000 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 
        paragraph, the term `modified adjusted gross income' means the 
        adjusted gross income of the taxpayer for the taxable year 
        increased by any amount excluded from gross income under 
        section 911, 931, or 933.
    ``(d) Other Limitations and Special Rules.--For purposes of this 
section:
            ``(1) Lifetime dollar limitation.--In the case of qualified 
        tuition and related expenses with respect to any eligible 
        student, the aggregate amount of the credits allowed in the 
        taxable year and any prior taxable year for such eligible 
        student (whether beginning before or after Expand American 
        Educational Opportunity Act of 2021) shall not exceed $15,000, 
        determined without regard to whether--
                    ``(A) such credits are claimed on the return of tax 
                filed by the eligible student or by another taxpayer, 
                or
                    ``(B) such expenses are treated as paid by the 
                eligible student or by another taxpayer.
        If, in any taxable year, the aggregate amount of such credits 
        equals or exceeds $15,000, the amount allowed as a credit under 
        subsection (a) in any subsequent taxable year with respect to 
        such student shall be zero.
            ``(2) Identification requirements.--
                    ``(A) Students.--
                            ``(i) In general.--No credit shall be 
                        allowed under this section to a taxpayer with 
                        respect to the qualified tuition and related 
                        expenses of an eligible student unless the 
                        taxpayer includes the name and taxpayer 
                        identification number of such eligible student 
                        on the return of tax for the taxable year.
                            ``(ii) Issuance.--The requirements of 
                        clause (i) shall not be treated as met unless 
                        the individual's taxpayer identification number 
                        was issued on or before the due date for filing 
                        the return of tax for the taxable year.
                    ``(B) Taxpayer.--No credit shall be allowed under 
                this section if the identifying number of the taxpayer 
                was issued after the due date for filing the return for 
                the taxable year.
                    ``(C) Institution.--No credit shall be allowed 
                under this section unless the taxpayer includes the 
                employer identification number of any institution to 
                which qualified tuition and related expenses were paid 
                with respect to the individual.
            ``(3) 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 (b) 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 
                        of title 10, United States Code, and
                            ``(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 the 
                Expand American Educational Opportunity Act of 2021) of 
                such individual at an eligible educational institution 
                for the academic period for which the credit under this 
                section is being determined.
            ``(4) 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.
            ``(5) 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.
            ``(6) 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.
            ``(7) 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.
            ``(8) 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.
    ``(e) 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.
    ``(f) Definitions.--For purposes of this section:
            ``(1) Eligible student.--The term `eligible student' means, 
        with respect to any taxable year, an individual who--
                    ``(A) is enrolled for at least one academic period 
                which begins during such taxable year at an eligible 
                educational institution, and
                    ``(B) meets the requirements of section 484(a)(1) 
                of the Higher Education Act of 1965, as in effect on 
                the date of the enactment of the Expand American 
                Educational Opportunity Act of 2021.
            ``(2) Qualified tuition and related expenses.--
                    ``(A) In general.--The term `qualified tuition and 
                related expenses' means tuition, fees, computer or 
                peripheral equipment, child and dependent care 
                expenses, and course materials required for the 
                enrollment or attendance of--
                            ``(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.
                    ``(D) Computer or peripheral equipment.--
                            ``(i) In general.--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 beneficiary during any of the years the 
                        beneficiary 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.
                    ``(E) 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 eligible 
                        student to be enrolled in an eligible 
                        educational institution for any period for 
                        which there are one or more qualifying 
                        individuals with respect to the eligible 
                        student:
                                    ``(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 eligible individual'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.
                    ``(F) Child and dependent care expenses only 
                qualified expenses when claimed by eligible student.--
                Amounts paid for an expense described in subparagraph 
                (E) which may be taken into account under this 
                paragraph for a taxable year by a taxpayer who is not 
                an eligible student shall not exceed $0.
            ``(3) Eligible educational institution.--The term `eligible 
        educational institution' means an institution--
                    ``(A) which is described in section 481 of the 
                Higher Education Act of 1965, as in effect on the date 
                of the enactment of the Expand American Educational 
                Opportunity Act of 2021, and
                    ``(B) which is eligible to participate in a program 
                under title IV of such Act.
    ``(g) Portion of Credit Refundable.--The lesser of--
            ``(1) the credit allowed under this section for a taxable 
        year (determined after application of subsections (c)(1) and 
        (d) and without regard to this subsection and section 26(a)(2), 
        as the case may be), or
            ``(2) $1,500,
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.
    ``(h) Restrictions on Taxpayers Who Improperly Claimed Credit in 
Prior Year.--
            ``(1) Taxpayers making prior fraudulent or reckless 
        claims.--
                    ``(A) In general.--No credit shall be allowed under 
                this section for any taxable year in the disallowance 
                period.
                    ``(B) Disallowance period.--For purposes of clause 
                (i), the disallowance period is--
                            ``(i) the period of 10 taxable years after 
                        the most recent taxable year for which there 
                        was a final determination that the taxpayer's 
                        claim of credit under this section was due to 
                        fraud, and
                            ``(ii) the period of 2 taxable years after 
                        the most recent taxable year for which there 
                        was a final determination that the taxpayer's 
                        claim of credit under this section was due to 
                        reckless or intentional disregard of rules and 
                        regulations (but not due to fraud).
            ``(2) Taxpayers making improper prior claims.--In the case 
        of a taxpayer who is denied credit under this section for any 
        taxable year as a result of the deficiency procedures under 
        subchapter B of chapter 63, no credit shall be allowed under 
        this section for any subsequent taxable year unless the 
        taxpayer provides such information as the Secretary may require 
        to demonstrate eligibility for such credit.
    ``(i) Inflation Adjustment.--In the case of any taxable year 
beginning in a calendar year after 2021, each dollar amount in 
subsections (b) and (c)(2), and (d)(1) shall be increased by an amount 
equal to--
            ``(1) such dollar amount, multiplied by
            ``(2) 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 2020' for 
        `calendar year 2016' in subparagraph (B) thereof.
In the case of subsections (b) and (d)(1), any increase determined 
under the preceding sentence shall be rounded to the nearest multiple 
of $50. In the case of subsection (c)(2), any increase determined under 
the preceding sentence shall be rounded to the nearest multiple of 
$500.
    ``(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.''.
    (b) Retention of Limitation.--
            (1) In general.--Subparagraph (D) of section 25A(b)(2) of 
        the Internal Revenue Code of 1986, as in effect before the 
        enactment of the Expand American Educational Opportunity Act of 
        2021, is hereby transferred to section 25A of such Code, as 
        amended by subsection (a), and is inserted as a new subsection 
        (d)(9) of section 25A, as so amended.
            (2) Conforming amendment.--Paragraph (9) of section 25A(d) 
        of such Code, as transferred and inserted by paragraph (1), is 
        amended by striking ``The Hope Scholarship Credit under 
        subsection (a)(1)'' and inserting ``The credit under subsection 
        (a)''.
    (c) Conforming Amendments.--
            (1) Subparagraph (B) of section 72(t)(7) of such Code is 
        amended by striking ``25A(g)(2)'' and inserting ``25A(d)(3)''.
            (2) Paragraph (2) of section 221(d) of such Code is 
        amended--
                    (A) by striking ``25A(g)(2)'' in subparagraph (B) 
                and inserting ``25A(d)(3)'', and
                    (B) by striking ``25A(f)(2)'' and inserting 
                ``25A(f)(3)''.
            (3) Paragraph (3) of section 221(d) of such Code is amended 
        by striking ``25A(b)(3)'' and inserting ``25A(f)(1) (but only 
        with respect to a student who is carrying at least \1/2\ the 
        normal full-time workload for the course of study the student 
        is pursuing)''.
            (4) Clause (v) of section 529(c)(3)(B) of such Code is 
        amended--
                    (A) by striking ``25A(g)(2)'' in subclause (I) and 
                inserting ``25A(d)(3)'', and
                    (B) by striking ``Hope and lifetime learning 
                credits'' in the heading and inserting ``American 
                opportunity credit''.
            (5) Clause (i) of section 529(e)(3)(B) of such Code is 
        amended by striking ``25A(b)(3)'' and inserting ``25A(f)(1) 
        (but only with respect to a student who is carrying at least 
        \1/2\ the normal full-time workload for the course of study the 
        student is pursuing)''.
            (6) Subparagraph (C) of section 530(d)(2) of such Code is 
        amended--
                    (A) by striking ``25A(g)(2)'' in clause (i)(I) and 
                inserting ``25A(d)(3)'', and
                    (B) by striking ``Hope and lifetime learning 
                credits'' in the heading and inserting ``American 
                opportunity credit''.
            (7) Clause (iii) of section 530(d)(4)(B)(iii) of such Code 
        is amended by striking ``25A(g)(2)'' and inserting 
        ``25A(d)(3)''.
            (8) Section 1400O of such Code is amended--
                    (A) by striking ``25A(f)(2)'' and inserting 
                ``25A(f)(3)'',
                    (B) by inserting ``(as in effect on the date of the 
                enactment of this section)'' after ``25A(b)(1)'' in 
                paragraph (2), and
                    (C) by inserting ``(as in effect on the date of the 
                enactment of this section)'' after ``25A(c)(1)'' in 
                paragraph (3).
            (9) Subsection (e) of section 6050S of such Code is amended 
        by striking ``subsection (g)(2)'' and inserting ``subsection 
        (d)(3)''.
            (10) Subparagraph (A) of section 6211(b)(4) of such Code is 
        amended by striking ``subsection (i)(6)'' and inserting 
        ``subsection (g)''.
            (11) Section 6213(g)(2) of such Code is amended--
                    (A) in subparagraph (J), by striking ``25A(g)(1)'' 
                and inserting ``25A(d)(2)'', and
                    (B) in subparagraph (Q), by striking 
                ``25A(i)(8)(B)'' and inserting ``25A(h)(2)'' and by 
                striking ``25A(i)'' and inserting ``25A''.
            (12) Subsection (g) of section 6695(g) of such Code is 
        amended by striking ``25A(a)(1)'' and inserting ``25A(a)''.
    (d) 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 the Internal Revenue Code of 1986 is amended to read as follows:

``Sec. 25A. American Opportunity Tax Credit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2020.

SEC. 3. EXPANSION OF PELL GRANT EXCLUSION FROM GROSS INCOME.

    (a) In General.--Paragraph (1) of section 117(b) 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--
            ``(1) 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
            ``(2) 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 Expand American Educational Opportunity Act of 
        2021).''.
    (b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2020.
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