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Some employee educational benefits taxable for 1992.

The tax-exempt treatment accorded educational payments to employees under a Section 127 Employee Educational Assistance Plan expired June 30, 1992. Although a provision to extend this tax preference was included in the tax bill, that legislation was vetoed. As a result, amounts paid after June 30, 1992 under a Section 127 plan are generally subject to taxation (including Social Security and Medicare taxes) and must be reported as gross income to the employee in 1992. An exception to this general rule exists if the education qualities as a tax-exempt working condition fringe benefit under Section 132.

In general, educational benefits qualify for tax favorable treatment under Section 132 if they are paid to employees to maintain or improve their present jobrelated skills and the employer requires the employee to (1) use the payment for expenses in connection with a specific or pre-arranged activity; (2) verify that the payment is actually used for such; expenses, and (3) return to the employer any part of the payment not so used.
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Author:Gustafson, Katharine Herber
Publication:Nation's Cities Weekly
Date:Jan 18, 1993
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