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In an effort to minimize the impact on small businesses of the recently-passed minimum wage legislation, Senator Jon Kyl (R-AZ) proposed an amendment to extend a 15-year cost recovery for restaurants and retailers. In order to pay for this, the amendent would have eliminated the tax-free tuition benefits for employees of colleges and universities allowed under Internal Revenue Code section 117(d).

NACUBO and other higher education associations moved quickly to contact Senate Finance Committee staff, explaining that the tax-free tuition benefits institutions can provide under 117(d) serve as a significant recruitment and retention tool. The effect of its repeal would be a tax increase on middle and lower income campus employees--those who remain loyal to the institution in part because of the opportunity to put their children through college at a reduced cost. 

Section 117(d) allows educational institutions to offer qualified tuition reductions to employees and their families, which are excludable from income and employment taxes. This exclusion applies to any education below the graduate level, including K-12, unless the student is a graduate teaching or research assistant.  Only graduate TA and RA tuition benefits are tax-free---any compensation paid to students for teaching or research is considered compensation and subject to tax. 

The proposal to repeal 117(d) was included in a 2005 report from the Joint Tax Committee, offering lawmakers hundreds of potential revenue raising options.

Senate Finance Chairman Max Baucus (D-MT), who has championed section 117(d) in the past, took the lead in defeating the Kyl amendment.


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