We are writing to inform you of an impending change in the tax
treatment of educational assistance programs under which an
employer pays, or reimburses, an employee for up to $5,250 in
educational assistance under a written plan of the employer. As you
may be aware, the educational assistance an employer provides to an
employee pursuant to an educational assistance program established
under Section 127 of the Internal Revenue Code is not taxable to an
employee under the current tax law. However, this beneficial tax
treatment is currently set to expire on December 31, 2012.
We note that this beneficial tax treatment has previously expired,
and Congress has previously reinstated it - so it is possible that
Congress may act to continue the $5,250 beneficial tax treatment.
We also note that even if the beneficial tax treatment under Code
Section 127 is not extended, under certain circumstances
educational assistance may be continued to be provided on a
tax-free basis if the arrangement meets the standards of other
parts of Code - such as the working condition fringe rules.
Finally, please keep in mind that even if your program's
benefits no longer qualify for tax-free treatment, the Internal
Revenue Code does not prohibit you from offering an educational
program benefit to your employees. Rather, if such a program is
offered, you must simply make sure to report the benefit as a
taxable benefit to the employee. Employers should make sure that
that if they continue to offer these programs in 2013, and the
Section 127 exclusion rules are not ultimately extended, the
program benefits are reported as taxable, to the extent
required.
Please contact your Patterson Belknap relationship attorney if you
would like more information on the tax status of the Code Section
127 educational assistance programs, and whether your program may
qualify as a tax-free benefit if the Code Section 127 tax benefits
expire on December 31, 2012.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
