Tax Tips Logo ImageISSUE

Internal Revenue Code Section 127 provides for “employer education assistance programs.”  A new bill in the House of Representatives would increase the long-standing $5,250 per employee annual limit.  But wait… I have a question.

 

SITUATION

Saltwater Christian College (SCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are required to file Form 990 annually.

We were talking with SCC’s Accounting Team on a video call this week and they asked an interesting question.

“We know that the original intent in the House’s version of 2017 Tax Reform got rid of the Section 127 employer education assistance programs – along with tuition reduction programs in Section 117.  Is there any update on what might be going on in Congress with respect to Section 127?”

“As a matter of fact, a new bill was recently introduced that would double the $5,250 annual limit for employer education to $11,500 and then index that amount for inflation in future years.  The bill is H.R. 4849 and it is currently in the House Ways and Means Committee.”

“That would be excellent.”

“Yes, it would.  But, a close reading of the bill causes some possible consternation.  H.R. 4849 adds verbiage to I.R.C. Section 127(a)(2) that appears to change things.  If I’m reading it correctly, the new bill would no longer include graduate level courses in the definition of ‘employer education assistance programs.’”

*Section 127(a)(2) currently:

(2)  $5,250 maximum exclusion.

If, but for this paragraph, this section would exclude from gross income more than $5,250 of educational assistance furnished to an individual during a calendar year, this section shall apply only to the first $5,250 of such assistance so furnished.

**Section 127(a)(2) under H.R. 4849:

2) MAXIMUM EXCLUSION.—

“(A) IN GENERAL.—This section shall apply only to the first $11,500 of educational assistance furnished to an individual during a calendar year, in the case of assistance for education below the graduate level. [Underline added.]

So, am I missing something?  Is this somebody in Congress confusing section 127 with section 117?

The definition of “educational assistance” is down in I.R.C. Section 127(c)(1) but does not specifically mention “graduate” courses.

In an October 25, 2019 letter to Congressmen Danny Davis and Jason Smith, “The Sec. 127 Coalition” congratulated them for the effort to increase the threshold and stated, in part:

“As you know, Sec. 127 is a popular employer-provided benefit that enjoys bipartisan support and currently allows an employee to exclude from income only up to $5,250 per year in assistance for any type of educational course at the undergraduate and graduate level. However, this annual amount of assistance has not been increased since the benefit was created over 40 years ago.” [Underline added.]

So, maybe I’m reading 4849 wrong.  Can someone straighten me out, please?  THANKS!

 

RULES

From the Text of H.R. 4849:

To amend the Internal Revenue Code of 1986 to increase the exclusion for educational assistance programs.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. Short title.

This Act may be cited as the “Upward Mobility Enhancement Act”.

SEC. 2. Increase in exclusion for educational assistance programs.

(a) In general.—Paragraph (2) of section 127(a) of the Internal Revenue Code of 1986 is amended to read as follows:

“(2) MAXIMUM EXCLUSION.—

“(A) IN GENERAL.—This section shall apply only to the first $11,500 of educational assistance furnished to an individual during a calendar year, in the case of assistance for education below the graduate level.

“(B) INFLATION ADJUSTMENT.—In the case of any calendar year after 2019, the dollar amount in subparagraph (A) shall be increased by an amount equal to—

“(i) such dollar amount, multiplied by

“(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which such taxable year begins by substituting ‘calendar year 2017’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.

If any increase determined under this subparagraph is not a multiple of $50, such increase shall be rounded to the next lowest multiple of $50.”.

(b) Effective date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2018.

 

BOTTOM LINE

  • “Employer education assistance programs” can be of great help to employers and employees.
  • Please remember that – originally – the “2017 TCJA” sought to suspend/repeal this benefit under I.R.C. Section 127.
  • We would LOVE to see the $5,250 limit doubled and then adjusted for inflation going forward.
  • However, is there something we might be missing with H.R. 4849?

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

© 2020 Moja & Company, LLC