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Legislation to Extend Tax-Free Employer-Provided Educational Assistance Introduced in the House

March 7, 2012

The expiration of the current tax rates for individuals at the end of 2012, the so-called Bush tax cuts, along with the corporate tax rate, have been the primary focus of attention for the mainstream media and most voters when it comes to discussing federal tax policy. However, a host of tax provisions impacting higher education are also set to expire at the end of the year, including Section 127 of the Internal Revenue Code, employer-provided educational assistance benefits.

Last week, 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.

Under Section 127, which Congress created in 1978, an employee may receive up to $5,250 in tax-free educational assistance per year from an employer for undergraduate or graduate-level courses. Assistance benefits are allowed to cover payments for tuition, fees and similar expenses, books, supplies, and equipment. 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 employees. A 2010 study determined that almost a million students were benefiting from the provision, with each student averaging $2,700 in Section 127 benefits.

NACUBO is a member of the Coalition to Preserve Employer Provided Education Assistance (CPEPEA), which is working to get the provision extended or made permanent. The coalition is a group of higher education institutions, associations, companies, and labor groups dedicated to ensuring the tax protection of employer tuition assistance programs. NACUBO urges colleges and universities to include support for permanent extension of Section 127, and H.R. 4137, in their institution's federal priorities and to learn more about the coalition and follow their efforts on the CPEPEA web site.


Liz Clark
Senior Director, Federal Affairs