Congress·In Committee·S. 1610

Senate Committee Reviews Bill to Make Pell Grants Tax-Free Starting in 2026

Tax-Free Pell Grant Act

11 months ago·View on Congress.gov

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Stalled

No legislative action in over 90 days.

Legislative Progress

Senate

House

President

Law

Key Points

Pell Grants would no longer count as taxable income for students, even if the money is used beyond tuition and required school costs.
This could lower a student’s tax bill (or keep them from owing taxes) when they get a Pell Grant.
The bill also says students can still use education tax credits even if they received a Pell Grant, without reducing those credits just because of the Pell Grant.
The change would start for tax years beginning after December 31, 2025, meaning it would affect taxes filed for the 2026 year and after.

TaxesEducation

Impact Analysis

Personal Impact

How this policy affects specific groups of people

Positive Impacts(3)

Student Loans

Helps

Student

Helps

Child Tax Credit

Helps

Milestones

2 milestones2 actions

May 6, 2025Senate

Read twice and referred to the Committee on Finance.

May 6, 2025

Introduced in Senate

What Happens Next

Projected impacts based on AI analysis

Tax filing season for 2026 returns (typically early 2027)

Eligible students see the change when filing their 2026 federal tax return

When you file in early 2027, you may owe less federal income tax (or get a bigger refund) because your Pell Grant is excluded and it won’t shrink certain education credits.

Late 2026 through early 2027

Tax software and IRS guidance update to reflect the new Pell treatment

Students and families should see clearer tax forms/instructions so Pell amounts aren’t accidentally treated as taxable, reducing filing mistakes.

Related News

3 articles

BestColleges·11 months ago

Bipartisan Proposal Would Make Pell Grants Tax-Exempt

A bipartisan coalition introduced the Tax-Free Pell Grant Act to make leftover Pell Grant funds used for living expenses tax-exempt. The bill would also allow recipients to make full use of the American Opportunity Tax Credit (AOTC) without deductions for Pell funds.

Community College Daily·11 months ago

Washington Watch: Tax-Free Pell Grant reintroduced in Senate

A bipartisan group of senators reintroduced the Tax-Free Pell Grant Act, a top priority for community colleges. The measure would shield students from paying taxes on Pell Grant portions used for books and living expenses and enable them to qualify for the $2,500 AOTC.

Community College Daily·10 months ago

Washington Watch: What's in the 'One Big Beautiful Bill Act'

The House-passed reconciliation bill did not include the bipartisan Tax-Free Pell Grant Act. Advocates are now pushing for its inclusion in the Senate version to fix the tax treatment of Pell Grants and improve AOTC eligibility for low-income students.