How the Trump Harvard Tax-Exempt Threat Could Impact You

You may have heard about a standoff between Harvard University and the Trump administration. Basically, President Trump has threatened to revoke Harvard’s tax-exempt status, which has drawn national attention.

On Tax Day, April 15, Trump posted the following on his social media platform, Truth Social:

"Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting 'Sickness?' … Tax Exempt Status is totally contingent on acting in the PUBLIC INTEREST!"

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The post came after Harvard refused to comply with the administration's unprecedented demands to exert control over the private university’s hiring, student body, policies, and procedures.

Not long after, Trump called Harvard a "joke," and various outlets are now reporting that the IRS is looking into rescinding Harvard's tax-exempt status. The U.S. Department of Homeland Security (DHS), led by Secretary Kristi Noem, announced it may remove the university's ability to enroll foreign students.

Then on May 2, Trump posted the following on Truth Social: "We are going to be taking away Harvard's Tax Exempt Status. It's what they deserve!"

At first glance, the drama seems to center on the nation’s oldest and wealthiest university, so the response might be: Who cares? But it's worth noting that the tax and legal stakes could ripple far beyond Harvard Yard.

Here’s how this escalating dispute could ultimately matter for you or someone you know.

Trump and Harvard University: What’s the issue?

The conflict began when the Trump administration issued a list of demands to Harvard, including changes to hiring, admissions, and academic programming.

The administration framed those demands as efforts to address concerns about campus antisemitism and what it described as “radical” or “political” ideologies.

• More specifically, the Trump administration insisted that Harvard end all diversity and inclusion programs in hiring and admissions and replace them with strictly merit-based criteria.
• They required detailed demographic data for federal audits and called for external reviews to ensure ideological balance among faculty and students.
• Additionally, the administration sought stricter screening of international students for “anti-American” views and ordered reporting of certain student protests.

Harvard rejected those demands as unlawful and an unacceptable intrusion into university governance.

In response, the Trump administration froze more than $2 billion in federal funding to the university. Later, as mentioned, Trump publicly threatened to challenge Harvard’s tax-exempt status if the university didn’t comply.

White House press secretary Karoline Leavitt told reporters Tuesday, “Trump wants to see Harvard apologize.”

Meanwhile, in a statement posted on X, former President Barack Obama said:

"Harvard has set an example for other higher-ed institutions — rejecting an unlawful and ham-handed attempt to stifle academic freedom, while taking concrete steps to make sure all students at Harvard can benefit from an environment of intellectual inquiry, rigorous debate and mutual respect, adding " "Let's hope other institutions follow suit."

Note: On April 21, Harvard filed a lawsuit against the Trump administration challenging its freeze of over $2.2 billion in federal research grants.

The university argues that the suspension of funding violates the U.S. Constitution and various federal laws and jeopardizes critical research, while unlawfully targeting academic autonomy.

Why is Harvard tax-exempt?

Many universities in the United States, including Harvard, are recognized as nonprofit organizations under Section 501(c)(3) of the Internal Revenue Code. That nonprofit status exempts organizations that hold the designation from federal income tax and allows them to receive tax-deductible charitable donations.

With its approximate $53 billion endowment as of 2024, Harvard's tax exemption is worth billions over time in saved taxes and continued philanthropic support. According to the university, nearly 70% of those funds are earmarked by donors for particular departments or initiatives. So, Harvard cannot simply redirect the funds to cover gaps from lost federal funding.

Note: Harvard's endowment has helped fund critical initiatives, including groundbreaking research in areas like public health (including research on cancer, Alzheimer’s disease, strokes, and HIV) and climate change.

Revoking that status could have significant financial consequences.

• For example, donations could become less attractive to potential donors, since contributions might not be tax-deductible.
• The university’s endowment income could be subject to federal taxes, reducing funds available for scholarships, critical research, and operations.
• A Bloomberg News analysis estimates Harvard’s annual tax bill could top $465 million if the exemption were lost.

The Trump administration has questioned why taxpayers should subsidize wealthy institutions that are accused of failing to protect all students.

The IRS is reportedly planning to revoke the university's tax exemption, a process that some past agency officials say would, under more normal circumstances, be long and involve an audit. And, as mentioned, Trump recently seemed to confirm plans to strip the university of its tax-exempt status in a post on Truth Social.

Some critics, however, warn that the administration is using last year’s protests over the war in Gaza and the antisemitism seen on some campuses as a pretext, and that using tax policy to target perceived political adversaries undermines the tax system.

Harvard’s leadership also argues that government interference in academic decisions threatens the core values of higher education.

“No government — regardless of which party is in power — should dictate what private universities can teach, whom they can admit and hire, and which areas of study and inquiry they can pursue,” Harvard president Alan Garber stated in a letter to the Harvard community.

It's Harvard tax: Who cares?

This may seem like just more noise and another tax dispute involving a wealthy institution that doesn’t matter. However, the real stakes could extend beyond Harvard’s campus.

If the U.S. government begins to use tax-exempt status as a political tool, it could have a chilling effect on the nonprofit sector.

• For instance, organizations might feel forced to self-censor or avoid controversial issues out of fear that their tax status could be revoked if those in power deem their activities or speech inconvenient.
• That could undermine many nonprofits' core purpose of serving the public interest. In some cases, that includes advocating for change and open debate.

Many in higher education worry that if the Trump administration and the IRS were to revoke Harvard’s tax-exempt status, it could chill academic freedom and institutional autonomy. Other colleges and universities could feel pressured to align with the political preferences of whichever party holds power.

Earlier this year, Columbia University reportedly agreed to several demands of the Trump administration in a negotiation over the school's federal funding.

Although the university's president has reportedly said the school won't enter into an agreement with the federal government that would "require us to relinquish our independence and autonomy as an educational institution."

Additionally, losing tax-exempt status or federal funding could force cuts to financial aid, research, and public service programs. That could ultimately affect students and communities nationwide.

And last but not least, there are legal and constitutional implications.

While the IRS is tasked with upholding the rules governing tax-exempt organizations (the President cannot unilaterally revoke that status), wielding tax status as a punitive or political tool raises concerns about executive overreach and free speech.

Some see the Trump-Harvard dispute over tax-exempt status as part of a broader pattern of the Trump administration using federal agencies to pressure institutions that resist its policy goals.

For example, in a separate move, the administration has pushed for the IRS to share confidential taxpayer data with ICE (U.S. Immigration and Customs Enforcement) to aid in deportation efforts, raising privacy concerns and prompting resignations among IRS officials.

Critics argue that the Harvard tax exemption and the IRS-ICE data-sharing agreement reflect the Trump administration's willingness to use federal government powers in unprecedented ways, with consequences beyond the immediate targets.

Harvard vs Trump: Bottom line

In this instance, tax law requires that tax-exempt status be based on clear, objective criteria — like the organization’s purpose and activities — not political disagreements or policy disputes.

And while the immediate tax issue involves Harvard and the Trump administration, the underlying questions are more universal.

How should the government regulate and oversee nonprofit organizations? Should political considerations influence tax policy? And how can we protect the independence of institutions that serve the public good? What about free speech?

Those questions will likely have to be answered eventually by the U.S. Supreme Court. Though we’re not there yet, neither side seems willing to back down.

If the IRS revokes Harvard's tax-exempt status, a visit to the U.S. Tax Court would be next.

This is a developing story, so stay tuned.

This article has been updated to include recent developments regarding Harvard's lawsuit against the Trump administration and Trump's latest posts regarding Harvard's tax-exempt status.

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