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Business Officer Magazine
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Federal File

Coverage of legislation and regulatory activity that affects higher education

By Liz Clark

Tax-Free Treatment of Employers' Educational Assistance Set to Expire

When it comes to federal tax policy, the mainstream media and most voters have focused on the U.S. corporate tax rate and the expiration at the end of 2012 of the current tax rates for individuals (the so-called Bush-era tax cuts). However, a host of tax provisions affecting higher education are also set to expire at the end of the year. Among them is Section 127 of the Internal Revenue Code—the Qualified Educational Assistance Program—which allows for tax-free treatment of employer-provided educational assistance benefits.

Other expiring provisions include the American Opportunity Tax Credit, the Student Loan Interest Deduction, and Coverdell Education Savings Accounts.

Efforts to Make Tax Exemption Permanent

Under Section 127, which Congress created in 1978, an employee may receive from his or her employer up to $5,250 per year in tax-free educational assistance for undergraduate-or graduate-level courses. Assistance benefits are allowed to cover payments for tuition, fees and similar expenses, books, supplies, and equipment.

Many colleges and universities find that providing educational assistance is a useful tool in attracting, building, and retaining a talented workforce.

Employers are not required to provide assistance under Section 127 to their employees. However, if an employer chooses to do so, the benefit must be offered to all employees on a nondiscriminatory basis that does not favor highly compensated individuals.

Earlier this year, representatives Sam Johnson (R-TX) and Richard Neal (D-MA) introduced legislation, H.R. 4137, the Employee Educational Assistance Act of 2012, to make Section 127 permanent.

A 2010 study commissioned by the Coalition to Preserve Employer Provided Education Assistance (CPEPEA) determined that almost a million students were benefiting from the provision. In 2007, those students received on average $2,700 in Section 127 benefits.

NACUBO, which is a member of CPEPEA, supports efforts to extend or make permanent the Section 127 provision. That's in great part because many colleges and universities find that providing educational assistance is a useful tool in attracting, building, and retaining a talented workforce. Similarly, employees appreciate the opportunity to continue their education and remain competitive in the workplace.

Extension of Expired Provisions Uncertain

While Congress must contend with the numerous elements of the tax code that will expire at the end of this year, legislators are also grappling with how to deal with a number of tax provisions that expired on Dec. 31, 2011. Congress must retroactively address nearly 50 provisions, several of which have an impact on NACUBO members and college and university students: the Individual Retirement Account charitable rollover, the research and development tax credit, and the above-the-line deduction for qualified tuition and related expenses.

Congress is likely to retroactively address the provisions that expired at the end of 2011, although the timing of that action remains unclear, and an element of uncertainty persists given the current partisan environment on Capitol Hill. Organizations and individuals that set financial plans according to these elements in the U.S. tax code may need to wait for a lame-duck Congress to return to Washington in November, to see any votes cast on these issues.

NACUBO CONTACT Liz Clark, director, congressional relations, 202.861.2553
@lizclarknacubo