NAICU Washington Update

Senators Propose Significant Tax Break for Employer-Provided Education Assistance

August 07, 2020

Senators Maggie Hassan (D-NH) and Todd Young (R-IN) introduced the bipartisan Upskilling and Retraining Assistance Act, which would expand the tax-free benefits under Internal Revenue Code Section 127, Employer-Provided Education Assistance.  The bill proposes an increase from the current annual amount of $5,250, to $12,000 for two years.  The legislation is designed to allow employers to offer a temporary higher annual benefit to employees who are both working and continuing their education during the pandemic.
The Senate sponsors are pushing for the bill to be included in the fourth stimulus package, which is currently being negotiated on Capitol Hill.  It’s unclear, however, if legislative proposals outside of those already passed by the House and Senate will be considered in the next round of funding relief.
IRC Section 127 was first enacted in 1978 as a temporary benefit allowing employers to assist employees with their education expenses.  The $5,250 annual amount is deductible to the employer, and not included in the employee’s taxable income.  While it finally became a permanent benefit in 2012, the annual tax-free amount has never been increased.
NAICU co-chairs the Section 127 Coalition with the Society for Human Resource Management.  The 127 Coalition is made up of nearly 100 higher education, business, and labor groups that support preserving and expanding the benefit.  A successful expansion of Section 127, allowing employers to offer the benefit to employees to use for either education or student loan repayment expenses for 2020, was included in the CARES Act.  This new bill would expand the annual tax-free amount for 2020 and 2021 to $12,000, and specify that amounts can be used for tools, computer equipment, and other job-related expenses.

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