Endowment tax is thetaxation offinancial endowments in the United States. Previous to 2018, these endowments were not taxed due to their charitable, educational, or religious mission. Endowments can be up to several billion dollars atsome universities,some charitable foundations, and some medical foundations. Several institutions have endowment/student ratio of >$1M. It is these endowments that are targeted.[1]
Unlike nonprofit corporations classified as apublic charity, private foundations in the United States are generally subject to a 1% or 2% excise tax on anynet investment income.[2][3] As enacted in theTax Cuts and Jobs Act of 2017 and amended by theBipartisan 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.[4] The 2018 endowment tax impacted the 53 wealthiest schools. It was in line with what most other philanthropic charities pay in excise taxes.[5]
The endowment tax will be expanded in 2026. The tax would be more aggressive. Again, it is levied on endowmentincome (not endowment per se) plus royalties, etc. The level of taxation will be tiered, based on the endowment/student ratio.[1]
The 2026 legislation would apply to private institutions with > 3,000 students. Only U.S. students count.[6] Some of the most strongly affected institutions are:
| Institution | Enrollment<[7] (FTE – fall 2023) | Endowment per student[7] (USD – FY2024) | |
|---|---|---|---|
| Princeton University | 9,079 | $3,750,669 | |
| Yale University | 15,269 | $2,714,107 | |
| Stanford University | 17,623 | $2,135,335 | |
| Harvard University | 24,357 | $2,133,974 | |
| Massachusetts Institute of Technology | 11,777 | $2,086,500 | |
| University of Notre Dame | 12,785 | $1,399,873 | |
| Dartmouth College | 6,700 | $1,234,823 |
The first five institutions each would pay hundreds of millions each in additional taxes according to the 2026 law.
The endowment tax provision of the Tax Cuts and Jobs Act was criticized as funding tax breaks for corporations and the wealthy at the expense of education.[8][9] The more aggressive 2025 tax has been described as a "scholarship tax.”[1]
