ISSUE:

The new tax reform bill – H.R. 1 – has some negative issues for higher education.  Chief among them are the repeal of tuition and education “assistance” programs.

SITUATION:

Troas Bible College (TBC) is a private college exempt under Internal Revenue Code section 501(c)(3) and section 170(b)(1)(A)(ii).  The past two “Tax Tips” have covered TBC’s “tuition assistance program” under Internal Revenue Code section 117(d) and the potential benefits of also having an “educational assistance” plan under I.R.C. section 127 plan.

After those discussions, we’ve now had to call TBC’s Controller back and say, “not so fast.”  The House Ways & Means Committee released The Tax Cuts and Jobs Act – H.R. 1 last Thursday (November 2, 2017).  Among several provisions that are unfriendly to colleges and universities, Section 1204 of the proposed legislation repeals the I.R.C. section 117(d) tuition assistance provisions and all of I.R.C. section 127 regarding educational assistance.

 

RULES:

From Tax Cuts and Jobs Act (H.R. 1) Summary [in part]:

Sec. 1204. Repeal of other provisions relating to education.

Current law:

Qualified Tuition Reductions

Under current law, qualified tuition reductions provided by educational institutions to their employees, spouses, or dependents are excluded from income. The exclusion may be provided in the form of either reduced tuition or cash. The reduction must be part of a program that does not discriminate in favor of highly compensated employees and may not apply to graduate programs (except for a graduate student who is teaching or a research assistant).

Employer-Provided Education Assistance

Under current law, employer-provided education assistance is excluded from income. The exclusion is limited to $5,250 per year and applies to both graduate and undergraduate courses. The education assistance must be part of a written plan of the employer that does not discriminate in favor of highly compensated employees.

Provision:

Under the provision, the deduction for interest on education loans and the deduction for qualified tuition and related expenses would be repealed. The exclusion for interest on United States savings bonds used to pay qualified higher education expenses, the exclusion for qualified tuition reduction programs, and the exclusion for employer-provided education assistance programs would also be repealed.

The exclusion for education assistance programs would be effective for amounts paid or incurred after 2017. The other provisions would be effective for tax years beginning after 2017.

 

BOTTOM LINE:

  • Tuition assistance plans (I.R.C. section 117(d)) have long been a benefit to Christian colleges, their staffs, and families.
  • Educational assistance programs (I.R.C. section 127) have provided all employers with opportunities to help their employees grow and develop in a tax-advantaged manner.
  • The new “tax reform bill” (H.R. 1) contains a provision to repeal both of these important benefits.
  • Is it time to speak out about your feelings on these proposed measures?

 

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.