Modified Endowment Income Tax To Hit Fewer Colleges and Universities But To Increase Significantly for a Handful

The IRS reported that for 2024 there were 45 colleges and universities that paid the Internal Revenue Code section 4968 excise tax on investment income, with the taxes paid totaling almost $169 million. But with the amendments approved by Congress in Title VII, section 70415 of the One Big Beautiful Bill Act effective for taxable years beginning after December 31, 2025, the first number is likely to decline significantly while the second number is likely to increase.

The first change is because, as reported by Forbes, there are two dozen or so wealthy private colleges that likely owed the tax previously but no longer will owe it because their student body size now falls under the increased 3,000 full-time equivalent tuition-paying students threshold for the tax applying.

The second change is because of the increased tax rates for the wealthiest, on a per full-time equivalent tuition-paying student basis, private universities. A Tax Notes analysis (subscription required) calculated that five universities will likely see their tax rate increased from the current 1.4% to 8%, while another 8 will likely see their tax rate increase to 4%. Yale with be hit the hardest, seeing its tax bill increase from approximately $31 million to approximately $176 million (based on its 2023 endowment). And since the thresholds that trigger the increased rates are not adjusted for inflation, it can be expected that each of these groups will grow over time.