The Society for Human Resource Management (SHRM) is supporting newly introduced legislation that would temporarily increase the amount of tax-free education assistance that employees can receive from their employers, as businesses adjust to economic changes brought about by the COVID-19 pandemic.
The legislation also would permanently modernize qualified education assistance to cover expenses for tools and technology required for educational programs.
Section 127 of the Internal Revenue Code enables an employee to exclude from income up to $5,250 per year in employer-provided assistance for tuition, fees, books and certain supplies for course instruction or training that improves or develops the employee's capabilities. Employers are not required to provide assistance under Section 127. However, if an employer chooses to do so, the benefit must be offered to all employees on a nondiscriminatory basis that does not favor highly compensated employees.
On Aug. 4, Sens. Maggie Hassan, D-N.H., and Todd Young, R-Ind., introduced S. 4408, the Upskilling and Retraining Assistance Act. The bill, endorsed by a coalition SHRM co-leads with the National Association of Independent Colleges and Universities, makes important changes to Section 127 of the tax code by:
- Temporarily raising the annual per-recipient tax exclusion from $5,250 to $12,000 for the next two years. This would adjust the exclusion to account for the last three decades of inflation, which would help employers meet the needs of their workers as they grapple with the effects of COVID-19 on their business.
- Permanently expanding the tax exclusion to cover education-related cost for tools and technology. This would include hand tools, construction equipment, computers and software, and similar costs incurred by workers in completing their education programs.
[SHRM members-only toolkit: Designing and Managing Educational Assistance Programs]
Responding to COVID-19 Challenges
"The bipartisan Upskilling and Retraining Assistance Act would make necessary changes to modernize employer-provided education assistance to support and promote training and upskilling for American workers," said Emily M. Dickens, chief of staff and head of government affairs at SHRM. "This is instrumental in COVID-19 recovery efforts," she added. "The Society for Human Resource Management supports strengthening and expanding this benefit and remains committed to a long-term solution" to address the skills gap facing U.S. employers.
"SHRM has long advocated for changes to modernize employer-provided education assistance to meet the needs of a modern workforce," added Chatrane Birbal, vice president for public policy at SHRM.
According to the 2019 SHRM Employee Benefits survey of 2,763 HR specialists, 56 percent of employers provided undergraduate or graduate tuition assistance last year. "Historically, these benefits have been used to facilitate investment in the workforce and ensure a talent pipeline as employers look to innovate and compete globally," Birbal said. "In today's environment, the benefit will be equally important as employees seek new opportunities to reskill and upskill, and as our nation looks toward COVID-19 recovery efforts."
Coalition member Jobs for the Future, a nonprofit organization that supports workforce development initiatives, said in a statement that the Upskilling and Retraining Assistance Act "responds to the economic disruptions caused by the COVID-19 crisis—helping workers to attain the skills needed for in-demand jobs and providing employers with the tools and resources necessary to attract and retrain workers for the post-COVID economy."
Addressing the Skills Gap
The current tax exclusion of $5,250 for education and training programs has not changed since 1986, is currently far below the cost of most higher-education programs, and does not cover the costs of tools and technology required to complete an educational program, according to a fact sheet posted by the legislation's sponsors.
"While employers have continued to use this educational assistance program to provide needed opportunities to their workers, shifts in workforce needs over the last three decades call for modernization to ensure that workers and their employers can fully benefit from this program," the fact sheet states. "Expanding educational assistance programs will help ensure that more employers have the tools they need to hire and retrain workers who have lost their jobs due to COVID-19."
Paul LeBlanc, president of Southern New Hampshire University, said that "during such historic times of need in our rapidly changing workforce, the expansion of Section 127 is a critical tool for employers to recruit and retain talent while building an educated workforce."
The bill, he added, would help to "advance social and economic mobility [by] removing barriers to opportunity and increasing access to education for America's workers."