NAICU Washington Update

Bills to Expand Tax Benefits for Employer-Provided Education Assistance Introduced

July 23, 2021

Legislation that would increase the annual tax-free education assistance amount that employers can provide to employees has been introduced in both the House of Representatives and Senate.  The bills would increase the annual amount of education assistance that employees can use for either tuition assistance or student loan repayment from $5,250 annually to $12,000.  The annual tax-free assistance amount, contained under Sec. 127 of the Internal Revenue Code, has not been increased in over 35 years.

Senators Maggie Hassan (D-NH), Todd Young (R-IN), Catherine Cortez Masto (D-NV), and Tim Scott (R-SC) introduced the Upskilling and Retraining Assistance Act, which would increase the annual tax-free benefit from $5,250 to $12,000 for two years, designed as a temporary pandemic-related boost for workforce retraining.  Companion legislation has been introduced in the House by Representatives Danny Davis (D-IL) and Jason Smith (R-MO).  Reps. Smith and Davis also introduced the Upward Mobility Act, which would increase the annual benefit to $12,000 permanently for undergraduate course work and student loan repayment, as well as index the amount for inflation. Under this bill, the benefit for graduate course work would remain at $5,250.

Sec. 127 was created as a temporary tax benefit in 1978, allowing employers to cover practically the entire cost of an employee’s education at that time.  After numerous extensions as the benefit grew in popularity, it was finally made permanent in 2012.  Recently, the benefit was expanded to allow the annual assistance to be used for either education assistance or student loan repayment in pandemic stimulus bills.  The student loan repayment expansion is in place until December 31, 2025.

NAICU co-chairs the Sec. 127 Coalition, made up of groups representing higher education, business, and labor that are dedicated to preserving and expanding this benefit. The coalition has been successful in not only preserving the benefit from being eliminated in tax reform legislation in 2017, but for expanding it to allow student loan repayment.  The coalition is now working with the House and Senate on efforts to increase the annual amount.

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