Tax Break Extension Legislation Includes Employee Benefits Provisions

December 28, 2010

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (“Tax Relief Act”), which generally extended the Bush-era tax reductions through December 31, 2012. The Tax Relief Act also includes several employee benefits-related extensions of interest to employers.

Educational Assistance Programs

Section 127 of the Internal Revenue Code (“Code”) permits an employer to maintain a program to provide tax-free educational assistance to its employees, provided that certain eligibility and nondiscrimination requirements are satisfied. A qualified educational assistance program may provide up to $5,250 in tax-free educational assistance for the payment of tuition and related expenses for undergraduate and graduate level coursework. Code Section 127 was scheduled to expire on December 31, 2010. The Tax Relief Act extends the application of Code Section 127 through December 31, 2012, allowing employers to continue to provide tax-free educational assistance to their qualifying employees for an additional two years.

Adoption Assistance Programs

Code Section 137 permits an employer to provide tax-free adoption assistance benefits (up to $13,360 per eligible child for 2011) to its employees, subject to the satisfaction of certain eligibility and nondiscrimination rules. Code Section 137 was scheduled to expire on December 31, 2011. However, the Tax Relief Act extends the application of Code Section 137 through December 31, 2012.

Mass Transit and Vanpool Benefits

Under current law, an employee may exclude from income up to $230 per month in qualified employer-provided mass transit and vanpool benefits (along with employer-provided parking benefits), provided that the program satisfies the requirements of Code Section 132(f). However, the permitted exclusion amount for mass transit and vanpool benefits was scheduled to be reduced to $120 per month after December 31, 2010. The Tax Relief Act extends the $230 monthly exclusion amount for employer-provided mass transit and vanpool benefits through December 31, 2011. The exclusion for employer-provided parking benefits is not subject to this sunset provision.

Overview