The tax bills currently pending reconciliation in Congress should be of concern to the day school community. As written, the law will treat scholarships as income, which will have a wide impact on tuition-paying families.
Graduate students around the country have been protesting for weeks, because the free tuition that allows them to attend graduate school, which they never see as cash, will suddenly be added to their Adjusted Gross Income. This tax will also produce devastating consequences for the American-Jewish day school system.
Orthodox Jews spend a larger share of their money than nearly any other community on private education, and Orthodox schools provide a greater share of scholarships than any other kind of private elementary school. (Catholic schools, in contrast, have lower tuition and provide smaller scholarships).
When a yeshiva grants a family a $10,000 break on tuition, the family breathes a sigh of relief. But if this part of the law remains, that family will have to pay taxes on that scholarship — in a 20 percent tax bracket, they’ll owe the federal government $2,000.
Many private schools also retain talented teachers and administrators by granting significant tuition breaks to their children. Under the new law, the value of those tuition breaks will have to appear on W-2s. As a result, those teachers and administrators will need to pay many thousands of dollars more in federal taxes.
Many day schools, and parents receiving financial aid, operate on a financial razor’s edge. If this law goes into effect, the new tax may force some parents to remove their children from Jewish schools. If it stays in effect, some of the talented young people considering a career in Jewish education may calculate that this career path won’t provide a Jewish education for their own children, and may be forced to choose a different occupation.
These results will have significant consequences for the Jewish community, pushing some schools beyond the point of financial viability. If we want those schools to continue operating, we need to contact our representatives and make sure this portion of the law is removed.
Howard M. Sragow