Endowment tax is the taxation of financial endowments that are otherwise not taxed due to their charitable, educational, or religious mission. Endowments can be up to several billion dollars at some universities, some charitable foundations, and some medical foundations.
Endowment tax in the United States
Excise tax on private foundation endowments
Unlike nonprofit corporations classified as a
public charity, private foundations in the United States are generally subject to a 1% or 2% excise tax on any net investment income.
[ ][Glossary of Philanthropic Terms. (n.d.). Retrieved November 5, 2014, from http://dearborncf.org/glossary.aspx ]
Federal changes in 2017 and 2018
As enacted in the Tax Cuts and Jobs Act of 2017 and amended by the Bipartisan Budget Act of 2018, an excise tax of 1.4% on endowment income is levied on universities that have at least 500 tuition-paying students and net assets of at least $500,000 per student. The $500,000 is not adjusted for inflation, so the threshold is effectively lowered over time.
The endowment tax provision of the Tax Cuts and Jobs Act has been criticized as funding tax breaks for corporations and the wealthy at the expense of education.
See also
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List of colleges and universities in the United States by endowment
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Payment in lieu of taxes
