The American Taxpayer Relief Act of 2012 (Act), signed into law by President Obama on January 2, 2013, indefinitely extended the popular exclusion for employer-provided educational assistance under Internal Revenue Code (IRC) §127.
IRC §127 permits the exclusion of $5,250 of employer-provided education assistance pursuant to a qualified educational assistance program from an employee’s taxable income. IRC §127 is a popular benefit among employers and employees because of its flexibility. The educational assistance can be provided for undergraduate or graduate studies, does not have to be job-related, and does not have to be part of a degree program. All employers need is a separate written plan that is nondiscriminatory and widely advertised, is not tied to otherwise available benefit choices and speaks solely to the provision of education benefits.
Education assistance includes an employer’s payment of expenses incurred by or on behalf of an employee for education and/or provision of education to an employee. Education includes any form of instruction or training that improves or develops the capabilities of an employee.
The term “employee” includes:
1. Current employees,
2. Retired, disabled or laid-off employees,
3. Employees on leave (e.g., active military duty), or
4. Self-employed individuals.
An employee receiving payments under a qualified educational assistance program must be prepared to provide substantiation to the employer such that it is reasonable to believe that payments or reimbursements made under the program constitute educational assistance.
Schneider Downs can assist employers with understanding the requirements of IRC §127. If you have any questions or require assistance on this issue, please do not hesitate to contact Susan M. Kirsch at firstname.lastname@example.org or Debra A. Ries at email@example.com.
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