Congress Approves Tax Cut Package with Tuition Tax Break

By Bill Leonard Dec 17, 2010

The House of Representatives voted on Dec. 17, 2010, to pass an $858 billion tax package that includes a two-year extension of a popular tax break for employer-provided tuition assistance. The legislation (H.R. 4853) was approved by a bipartisan margin of 277-148, with the vote in favor of passage split evenly among Democrats and Republicans.

President Barack Obama signed it later on Dec. 17. He had worked with GOP leaders in Congress to develop the massive tax deal and had urged legislators in both parties to approve the legislation.

Less than 48 hours before the House vote, the Senate cleared it. It extends for two years tax breaks enacted during the presidency of George W. Bush, including Section 127 or the tuition assistance tax exclusion. The Bush tax cuts were set to expire on Dec. 31, 2010. In addition, the legislation extends unemployment benefits for many Americans through 2011.

Section 127, which allows employees to exclude up to $5,250 a year in employer-provided tuition assistance for undergraduate and graduate-level courses, has been a popular tax provision among employers and employees. The two-year extension of the tuition tax break was welcome news for business and employee advocacy groups such as the Society for Human Resource Management (SHRM) and the Coalition to Preserve Employer-Provided Education Assistance, which support a permanent extension of Section 127. Even though the legislation passed by Congress will extend Section 127 for two years, members of the coalition have pledged to keep pushing for a permanent extension of the popular tax provision.

“Every human resource professional knows that getting the most out of your organization means bringing out the best in your people. We can’t be a nation of high wages and low skills,” said Robb E. Van Cleave, SPHR, IPMA-CP, chair of the SHRM Board of Directors, in a commentarypublished in The Huffington Post. “Our choice is clear and it must be made. It’s time to make Section 127 permanent and get on with the task of helping every American worker reach his or her full potential.”

Extending the Bush tax cuts had been a hotly debated topic on Capitol Hill during the summer and fall of 2010. Obama and Democratic leaders favored extending the tax cuts to middle-class families and ending the cuts for individuals and families who earned more than $250,000 per year. Republican leaders strongly supported extending the tax cuts for everyone.

Following the 2010 congressional elections, Obama agreed to compromise with GOP leaders and proposed a two-year extension of the Bush tax cuts to all U.S. taxpayers. The deal included a provision to reduce federal payroll taxes for most U.S. workers for one year by 2 percentage points, to 4.2 percent from 6.2 percent.

The unemployment benefit extension won’t apply to unemployed workers who have exhausted the maximum combined state and federal assistance of 99 weeks. The provision will ensure that long-term unemployed people in the states hardest hit by the recession will receive up to 99 weeks of unemployment benefits, rather than the 26 weeks normally available.

Bill Leonard is a senior writer for SHRM.


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