AB 116: Personal income taxes: gross income: exclusion: student loan assistance.
- Session Year: 2021-2022
- House: Assembly
- Latest Version Date: 2020-12-18
The Personal Income Tax Law excludes from the gross income of an employee amounts paid or incurred by an employer for educational assistance to the employee, as specified, up to $5,250 during a calendar year.
This bill would exclude from the gross income of an employee amounts, not exceeding an aggregate amount of $5,250 per year, that are paid or incurred by an employer on and after January 1, 2021, and before January 1, 2026, for the payment of principal or interest on a qualified education loan, as defined, incurred by the employee. The bill would also make various technical changes to these provisions and delete obsolete language relating to graduate level educational assistance.
Existing law requires that any bill introduced on or after January 1, 2020, that would authorize certain tax expenditures, as defined, or tax exemptions contain, among other things, specific goals, purposes, and objectives that the tax expenditure or exemption will achieve, detailed performance indicators, and data collection requirements.
This bill would state the intent of the Legislature to apply these requirements to its provisions and make findings regarding the purpose of the exclusion from gross income allowed by the bill, as described above.
This bill would take effect immediately as a tax levy.
(a)(1)Gross income of an employee does not include any amounts, not exceeding an aggregate amount of five thousand two hundred fifty dollars ($5,250) per calendar year, that is are paid or incurred by the employer for educational assistance to the employee pursuant to an educational assistance program.
(2)With respect to payments made by an employer beginning on and after January 1, 2021, and before January 1, 2026, gross income of an employee does not include any amounts, not exceeding an aggregate amount of five thousand two hundred fifty dollars ($5,250) per calendar year, that are paid or incurred by the employer, whether paid to the employee or to a lender, of principal or interest on any qualified education loan, as defined by Section 221 of the Internal Revenue Code, relating to interest on education loans, incurred by the employee.
(b)For purposes of this section, the following definitions shall apply:
(1)Educational assistance means the payment by an employer of expenses incurred by by, or on behalf of of, an employee for the employees education, and includes, but is not limited to, payments for books, supplies, equipment, tuition, and fees, and similar payments. Educational assistance includes the provision by an employer of courses of instruction for an employee, including the provision of books, supplies, and equipment. Educational assistance does not include any payment for, or the provision of, any of the following:
(A)Any tools or supplies that may be retained by the employee after completion of a course of instruction.
(B)Any meals, lodging, or transportation.
(C)Any course or education involving sports, games, or hobbies.
(D)Any course or education taken at the graduate level of a kind normally taken by an individual pursuing a program leading to a law, business, medical, or other advanced academic or professional degree. This subparagraph applies only to any course or education taken at the graduate level beginning after June 30, 1996, and before January 1, 2000.(2)Educational assistance program means a separate written plan of an employer for the exclusive benefit of his or her their employees to provide those employees with educational assistance. The program shall meet the following requirements:
(A)The program benefits employees who qualify under a classification established by the employer and found by the Franchise Tax Board not to be discriminatory in favor of employees who are highly compensated employees (within the meaning of employees, as defined by Section 414(q) of the Internal Revenue Code) Code, relating to highly compensated employee, or their dependents. For purposes of this subparagraph, there shall be excluded from consideration employees who are not included in the program and who are included in a unit of employees covered by an agreement that the Franchise Tax Board finds to be a collective bargaining agreement between employee representatives and one or more employers, if there is evidence that educational assistance benefits were the subject of good faith bargaining between the employee representatives and the employer or employers.
(B)Not more than 5 percent of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who are owners (or owners, or their spouses or dependents), dependents, each of whom, on any day of the year, owns more than 5 percent of the capital or profits interest in the employer.
(C)The program does not provide eligible employees with a choice between educational assistance and other remuneration includable in gross income. For purposes of this section, the business practices of the employer, as well as the written program, shall be taken into account.
(D)The program need not be funded.
(E)Reasonable notification of the availability and terms of the program is provided to eligible employees.
(3)Employee includes self-employed individuals within the meaning of Section 401(c)(1) of the Internal Revenue Code. Code, relating to self-employed individual treated as employee.
(c)For purposes of this section:
(1)Any individual who owns the entire interest in an unincorporated trade or business shall be treated as his or her their own employee.
(2)A partnership shall be treated as the employer of each partner who is an employee within the meaning of paragraph (3) of subdivision (b).
(3)(A)An educational assistance program shall not be considered to fail to meet any of the requirements of paragraph (2) of subdivision (b) on the sole basis of either of the following:
(i)Different utilization rates for the different types of educational assistance made available under the program.
(ii)Successful completion or attainment of a particular course grade is required for or considered in determining reimbursement under the program.
(B)This section shall not be construed to affect the deduction or inclusion in income of amounts that are paid or incurred or received as reimbursement for educational expenses under Section 117, 162, or 212 of the Internal Revenue Code.
(d)No A deduction or credit shall not be allowed to the employee with respect to any amount that the employee excludes from income pursuant to this section.
(e)Section 127 of the Internal Revenue Code Code, relating to educational assistance programs, shall not apply.
(f)This section shall apply with respect to expenses relating to courses beginning after June 30, 1996.
SEC. 2.(a)It is the intent of the Legislature to apply the requirements of Section 41 of the Revenue and Taxation Code to this act.
(b)With respect to Section 17151 of the Revenue and Taxation Code, as amended by this act, the Legislature finds and declares the following:
(1)The goal of this act is to ensure California addresses the student debt crisis that many people in the State of California face. Towards this end, this act will help many Californians receive a tax incentive on student loan repayment plans that was provided on behalf of the student by the employer.
(2)The effectiveness of the exclusion shall be measured by the decrease in student loan defaults, and increase in timely repayment of student loans, by Californians.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
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Date
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Status
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| Feb 1, 2022 | From committee: Filed with the Chief Clerk pursuant to Joint Rule 56. |
| Jan 31, 2022 | Died pursuant to Art. IV, Sec. 10(c) of the Constitution. |
| Mar 22, 2021 | In committee: Hearing postponed by committee. |
| Jan 11, 2021 | Read first time. |
| Dec 19, 2020 | From printer. May be heard in committee January 18. |
| Dec 18, 2020 | Introduced. To print. |
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