The 65-year-old, who is best known for penning the tunes Uptown Girl, Piano Man and New York State of Mind, is the sixth recipient of the prize.
Awarded by the US Library of Congress, it honours individuals for their lifetime achievement in popular music.
Joel was praised for being “a storyteller of the highest order”.
“There is an intimacy to his songwriting that bridges the gap between the listener and the worlds he shares through music,” Librarian of Congress James H Billington said.
Previous recipients of the award, named after songwriting brothers George and Ira Gershwin, are Carole King, Stevie Wonder, Sir Paul McCartney, Burt Bacharach and Hal David; and Paul Simon.
Joel has won multiple Grammys over his 50-year career including song and album of the year in 1978 for Just the Way You Are.
He was also presented with a Grammy Legend Award in 1990 and was inducted into the Rock and Roll Hall of Fame in 1999.
“The great composer, George Gershwin, has been a personal inspiration to me throughout my career,” the musician said.
“The Library’s decision to include me among those songwriters who have been past recipients is a milestone for me.”