The Internal Revenue Service in July released its regulations for new taxes on private colleges and universities added by the Tax Cuts and Jobs Act of 2017. The new rules add a 1.4 percent tax on college investment income for any school with at least 500 tuition-paying students and at least $500,000 in assets per student.
For Harvard, the university with the largest endowment in the U.S., that will add up to about $49.8 million in new taxes this year, school officials said in their annual financial report.
“Viewed in the context of maintaining affordability, less money is now available for [Harvard] to maintain financial aid,” the report states.
Harvard’s endowment saw a 6.5 percent return last year and was valued at $40.9 billion at the end of its last fiscal year in June, according to the report. The endowment provided $1.9 billion to the university this year, 35 percent of its total revenue, according to the report.
Lawrence S. Bacow, president of Harvard, wrote in the report that the university's financial resources are strong but the school’s leaders must be ready for challenges and a changing economic climate.
“Uncertainty in federal research funding and the damaging tax on college and university endowments in the Tax Cuts and Jobs Act also have the potential to hinder Harvard’s ability to grow investments in financial aid, teaching and research across campus,” Bacow wrote.
Public schools, small schools and schools with thinner wallets won’t have to pay the new endowment tax. But Harvard won’t be the only university hit by the new tax. IRS officials have estimated 40 institutions will be affected.
A Princeton spokesperson said the university is still working to understand the effect of this tax on endowments. Other private universities backed by large endowments contacted by FOX Business didn’t immediately share their estimates for how the new rules will hit their tax bill.
So which other schools are likely to get pinched by the new endowment tax? The National Center for Educational Statistics maintains a list of U.S. degree-granting post-secondary institutions with the largest endowments.
As of 2017 — the most recent year with data available — these were the 10 private universities with the largest endowments, according to the NCES: