College Tax Break for Working Students in Danger

Last Updated Aug 11, 2010 12:07 AM EDT

While Congress is debating whether to kill off the tax cuts created during George Bush's presidency, politicians don't seem to be focused on a valuable college tax benefit for working students, which is in danger of getting the axe this year.

Since 1978, employers have been able to reimburse students for some of their college costs without these payments being taxed. But unless Congress acts, this college tax benefit, which is officially referred to as Section 127 of the Internal Revenue Code, is scheduled to expire at the end of the year.

Under Section 127, student can receive up to $5,250 in employer education assistance without being taxed and the money can be used for such things as tuition, fees and books.

To call attention to the importance of the tax benefit, the National Association of Independent Colleges and Universities and the Society for Human Resource Management have issued a report that examines just who is taking advantage of this college tax break. Here is a summary of what the two organizations found:

  • Roughly 913,000 students received Section 127 benefits during the 2007-08 school year. In comparison, 431,500 students benefited from this tax break 15 years ago.
  • Forty-six percent of the participants were graduate students while the rest were undergrads.
  • The average age for undergrads using the benefit was 37 versus 35 for graduate students.
  • The average salary for these employees was $42,711. In comparison, the average earnings of a full-time employee in this country is $50,233.
  • The top four majors among students taking advantage of the tax break were business (28%), STEM - science, technology, engineering and math (17%), education (15%), and health (13%).
  • The average yearly benefit for a grad student was $3,701 and for a undergrad it was $1,849.
Lynn O'Shaughnessy is the author of The College Solution and she also write a college blog for TheCollegeSolutionBlog.