Tax-Free Pell Grant Act

This bill amends the Internal Revenue Code to expand the tax treatment of Pell Grants and certain education credits. It makes Pell Grants fully excludable from gross income and expands the definition of qualified expenses for the American Opportunity and Lifetime Learning credits to include computers, child and dependent care expenses, and course materials.

Sec. 2, Expansion of Pell Grant exclusion from gross income: This section amends the tax code to exclude all Federal Pell Grants from a recipient's gross income, regardless of how the grant money is used. It also adjusts the rules for education credits so that Pell Grants excluded under this new provision are not treated as qualified scholarships that reduce the amount of tuition expenses eligible for those credits. The change applies to tax years beginning after December 31, 2024.

Sec. 3, Expansion of American Opportunity and Lifetime Learning credits: This section expands the types of expenses that qualify for these education credits. It adds computer or peripheral equipment (up to a $1,000 limit per year), child and dependent care expenses incurred to enable the student to be enrolled, and course materials to the list of qualified tuition and related expenses. It also removes a previous exclusion for certain expenses and clarifies that these credits cannot also be claimed as a deduction. The changes apply to tax years beginning after December 31, 2024.