And this year, you come with an added punch; the looming specter of the fiscal cliff. While much of the U.S. knows that a lack of resolution on this subject will result in higher taxes, spending cuts and a reduction in the country's deficit, many don't realize that by going over the fiscal cliff, other things will be impacted, including tuition assistance programs.
In 2012, we saw a surge in companies "rediscovering" these plans. A burgeoning trend emerged, with leading companies integrating their tuition assistance program with their overall talent management strategy. However, much of this work could be for naught, if we go over the fiscal cliff in just a matter of days.
Here's why: Tuition assistance plans allocate pre-tax dollars for employees to further their education. This tax treatment is allowed under two sections of the IRS Tax Code ; section 127 (most popularly used) and section 132. If the Bush-era tax cuts are eliminated and the Budget Control Act of 2011 is reinstated, then tuition assistance plans governed under Section 127 would no longer be available on a pre-tax basis come January 1.
It may seem like a relatively small nuance on the surface, but in reality it's not. Companies impacted by this change will need to communicate to employees and do so, fast. Employees are potentially in for a nasty surprise when they receive a reimbursement check for significantly less than the amount they have already spent, due to the payment being taxed.
And, if this tax-code change comes to fruition in less than two weeks, companies will need to act quickly in order to change their administrative processes to handle payments properly, since a large percentage of tuition reimbursement requests come in during the December/January time frame.
And then, there's always the chance that the government will reach consensus some time after the New Year, and that distributions from Section 127 tuition assistance plans will go back to being considered pre-tax, with this this tax treatment being retroactive to the first of the year. Companies would need to update their administrative processes yet again, in order to handle this second change.
So much to consider -- and act on; all before the year is over.
December, you've outdone yourself this time.