Tuition Assistance and Dependent Care Benefits Survive Tax Reform

millennial employees

There's a sigh of relief echoing around the hallways of HR today.

After a week of worry over what would become of tax benefits for dependent care and employer tuition assistance, word got out recently that neither would see alterations under the new tax law: the rules would remain unchanged.

Valuable Benefits Unchanged

Tuition reimbursement and dependent care flexible spending accounts and deductions are recognized as some of HRs most important talent tools.

  • Employer provided child care credit allow credits up to $150,000, or 25% of child care expenses and 10% of expenses for resource and referrals.
  • Dependent care FSAs allow parents to pay up to $5,000 of work-related child care expenses in pre-tax dollars.
  • Tuition assistance allows employers to provide up to $5,250 in tax-free tuition (reimbursed or paid directly to the school), enabling employees to pursue valuable skills without recording assistance as taxable income.
All would have ended under the House's tax plan. But the Senate declined to address any of the issues in its own tax bill. And the final so-called "reconciled" bill left the codes unchanged.

The bottom line: dependent care credits stand, and employers will still be able to offer employees tax free tuition reimbursements for school and provide tax-saving flexible spending accounts for dependent-care expenses.

Preserving Access to Child Care

The relief was palpable. For families, the loss of dependent care benefits would have been devastating. Roughly nine in 10 employers offer flexible spending accounts. And for good reason. A CNBC article pointed out that a family in the 25 percent tax bracket would have lost savings of more than a thousand dollars a year.

"Making child care more affordable for working families is a laudable and bipartisan goal," wrote the vice president for early childhood policy at the Center for American Progress.

Preserving Skills for the Future

The tuition reprieve brought equal relief.  As a Forbes article pointed out, the end of the benefit would have taxed employees for tuition even if it was paid by employers directly to the school.

It also would have cost organizations a critical talent tool. "Employers use this benefit to attract and retain talent but also to retrain and reskill their employees to compete in an ever-changing global economy," SHRM's Kathleen Coulombe said in a SHRM article on the subject.

Our own Chris Duchesne couldn't agree more.

"Career development is an essential part of our clients' business cultures," says Chris. Since its 1978 establishment, he says, the benefit has had longstanding bipartisan support - and for good reason.

"It's about more than just taxable income," he says. "Tuition assistance is a benefit that employers have come to rely on; and that our clients know as a driver of critical skills, and a support for every aspect of business goals."

Read more about the tax reform bills, here.

Written by: Jonathan Corke

About the Author

Jonathan Corke at Bright Horizons

As Senior Director, Product Marketing, Jonathan has spent the last decade working at the intersection of strategic HR and enterprise technology. He has learned a great deal about converting a talent management strategy into an operating plan through direct conversations with HR leaders and numerous industry surveys. These experiences have sparked a fascination with how leading employers create a better environment for their workforce, and how that environment drives consistent business performance. Jonathan holds an MBA from Clark University.