Tax reform shouldn't undermine tuition benefits

Tax reform shouldn't undermine tuition benefits

As the debate surrounding tax reform envelops Washington and scores of special interest groups and lobbyists swarm the halls of Congress, there is a small line in Section 1204 of the House GOP tax bill that is getting very little attention, but will have an outsized impact on faculty and staff working at America’s colleges, universities and other private institutions.

While specifics vary, most private educational institutions provide full or partial tuition remission to employees, their spouses and their children who enroll at the institution.

This new tax provision adds the value of tuition benefits to a taxpayer’s salary and other income, and that new larger number would be used to calculate their tax bracket. This will balloon their taxable income making it impossible for many to take advantage of tuition remission programs, forcing them to forgo educational opportunities for themselves and their families.

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The ramifications could be severe, as taxpayers would be taxed at significantly higher rates because of the value of these benefits. At all levels of education — including grade school and high school — faculty and staff might no longer be able to afford to send their own children to the school where they work. Children of faculty and staff might not be able to receive the education that their parents were able to provide to their older siblings.

 

Tuition remission does not only benefit wealthy professors. The provision specifically requires that tuition remission programs not discriminate in favor of highly compensated employees. Staff members, including security guards, janitors and administrative personnel stand to have their taxable income increased as well.

An individual with a $50,000 salary at a private university who receives tuition remission benefits for a single child could see her taxable income double. A lower-wage employee with more than one child eligible for remission could receive very little if any after tax earnings.

Of course, faculty members who are already in a higher income bracket will also be impacted by the repeal of the benefit’s tax-free status. Many professors earn lower salaries than they might in the private sector. The inclusion of tuition remission in their gross income could force talented faculty members to leave academia and compel graduate students to abandon their educational plans.

Fortunately for the affected taxpayers, the Senate version of the tax bill that was just released on Nov. 9 does not include the  tax on tuition benefits. Hopefully, this is a sign that not all GOP members are in favor of saddling this narrow group of taxpayers with a catastrophic tax burden.

These taxpayers will certainly  forgo the benefit of filing a tax return on a postcard, if the cost is a crushing tax increase on tuition remission benefits.

Members of the academic community — from university presidents, deans and tenured professors to administrative staff, maintenance crews and students at all levels — only have weeks to voice their objection to the proposed tax plan.

With members of Congress working to meet the president’s goal of signing a new tax bill by Christmas, we must work quickly to educate our representatives and senators of the true cost of this misguided policy.

Patricia Doris-Crenny, CPA is an instructor of accounting and information systems at Villanova University's school of business.