Washington Update – January 17, 2013
January 17, 2013

By Josh Ulman, chief government relations officer, and Christi Layman, manager of government relations, CUPA-HR

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Cliff Deal Includes Tax Breaks for Employer-Provided Education

On January 2, the president signed the American Taxpayer Relief Act (H.R. 8) into law. The bill narrowly avoided the fiscal cliff, which was a series of tax increases and spending cuts that would have taken place in the new year without congressional action. Among the provisions in the new law is a permanent extension of Section 127 of the IRS Code, which allows employees to exclude from income up to $5,250 per year in financial assistance provided by their employer for any type of educational course at the associate, undergraduate and graduate level. Section 127 was created in 1978 as a temporary tax benefit. It has been extended 10 times, most recently through a two-year extension in 2010.

Treasury and IRS Issue Guidance on Affordable Care Act, But No Clear Answers on Adjuncts

On December 28, the IRS and Department of Treasury issued a Notice of Proposed Rulemaking (NPRM) on the Affordable Care Act (ACA)’s requirements for employers under section 4980H of the Internal Revenue Code. Large employers must comply with the new requirements by January 1, 2014. The agencies also released a related questions and answers document. The proposed rule provides guidance on:

  • determining when an employer is covered by the mandate;
  • how to identify full-time employees who are entitled to employer-provided coverage;
  • how to determine whether employer-sponsored coverage meets the law’s affordability requirements; and
  • how the ACA’s penalties will be administered.

The NPRM also provides relief for qualifying employers with non-calendar year plans. Those employers will not face penalties for failing to meet the January 1, 2014, deadline if they meet the affordability and minimum coverage requirements on the first day of their 2014 plan year.

CUPA-HR reached out to the agencies last fall to relay concerns that existing methods for determining when an employee is full time under the ACA did not work for adjunct faculty as adjuncts are paid for services rendered rather than by the hour. The agencies acknowledged our concerns in the NPRM (p. 225), but did not provide any specific guidance on adjuncts. The agencies stated that they may provide additional “guidance to address potentially common challenges arising in determining hours of service for certain categories of employees …” Until further guidance is issued, the agencies state that employers with such employees “must use a reasonable method for crediting hours of service that is consistent with the purposes of section 4980H.” However, the agencies provide little guidance as to what is reasonable, simply noting that it would not be reasonable to “take into account only classroom or other instruction time and not other hours that are necessary to perform the employee’s duties, such as class preparation time.”

CUPA-HR continues in its efforts to secure guidance on this and other issues. The agencies state in the preamble to the NPRM that “employers may rely on these proposed regulations for guidance pending the issuance of final regulations or other guidance.” CUPA-HR will be submitting comments on the NPRM.

Cliff Averted With Changes to the Tax Code

The American Taxpayer Relief Act prevented the country from going over the “fiscal cliff” for now by delaying sequestration (automatic spending cuts) and statutory spending caps for two months, until March 27. The bill also extended or made permanent most of the Bush tax cuts that were set to expire on January 1, 2013. The tax top rates for income and investment, however, were increased. Under the new law, individuals making more than $400,000 and families making more than $450,000 will see their income tax rates rise from 35% to 39.6%, as well as their capital gains rates rise from 15% to 20%. The 2% FICA payroll tax cut was one of the few expiring provisions that was not extended. It expired on January 1, so the FICA tax will return to 6.2% for all employees.

Also of importance to higher ed HR, in addition to Section 127 being made permanent, the bill continues the extended federal emergency unemployment benefits and reinstates and extends the Work Opportunity Tax Credit for one year, until January 1, 2014. The American Opportunity Tax Credit (AOTC), for certain students and parents to claim up to $2,500 a year in college expenses, was extended five years. The IRA Charitable Rollover, preventing tax liability for charitable donations from an IRA, was also extended one year, along with the research and development tax credit. Finally, the increase in the monthly exclusion for employer-provided transit and vanpool benefits was permanently extended.

Sole Republican Leaves NLRB

On December 16, former National Labor Relations Board Member Brian Hayes's term expired, leaving the Board without any Republican members. Remaining on the Board are Chairman Mark Pearce (D), whose term expires in August, and recess appointees Sharon Block (D) and Richard Griffin (D), whose terms end at the conclusion of this session of Senate (most likely January 3, 2014). Without additional appointments, the NLRB will drop to two members in August and will no longer be able perform is appellate function and issue rules (the Supreme Court recently held that the NLRB needs at least three members to perform these functions). President Obama has yet to nominate anyone to replace Hayes or former Republican Board Member Terry Flynn.

Hayes’s departure cast a further cloud over the agency, which has faced several high-profile legal challenges in the last year. Most notably, several business have challenged the appointments of Block and Griffin on the grounds that the president “recess” appointed these nominees, even though at the time the Senate was in pro forma session and not in recess. If the business groups are successful in their challenge, the Board’s decisions issued over the past year will be invalid.

Several pending cases at the Board important to private colleges and universities have many in higher ed closely following the recess appointment challenge and developments at the Board. In two of those cases, New York University and Polytechnic Institute of New York University, regional board officials ruled that graduate students could not organize because of the Board’s 2004 Brown University decision (342 NLRB 483). In another case, Point Park University, the Board will address the extent to which faculty members at private institutions are employees covered by the National Labor Relations Act (NLRA or Act).

CUPA-HR filed a brief in Point Park on July 6 and a brief in the NYU cases on July 23.