Under the House’s current draft budget bill, which was released on May 15, 2025, the 1.4% excise tax on private universities’ net investment income would increase up to 21%, effectively negating one of the main benefits of tax-exempt status. The tax exemption for charitable contributions and the deductibility thereof would remain unaffected by the excise tax. The relevant excise tax rate would generally be determined according to the university’s endowment per student (e.g., a university with an endowment in excess of $2 million per student would be subject to a 21% tax rate, and universities with lower ratios would pay either 14%, 7%, or 1.4%, respectively).
The excise tax would not apply to public universities or colleges established by churches after July 4, 1776 that have maintained a published institutional mission that is predicated upon “religious tenets, beliefs, or teachings.” The religious college exception is noteworthy as the IRS has historically avoided defining “religion” in light of the Constitutional protections on religion, and the legislation could force the IRS to deviate from this position.
In a bit of good news, the current draft budget bill omits a prior and widely criticized proposal that would have granted the Secretary of the Treasury broad discretion to unilaterally revoke tax-exempt status for “terrorist supporting organizations,” seen by some as a threat to universities’ tax-exempt status.
