Tuition Tax Break Set to Expire (9/10)

Expiring tax breaks have been in the news lately as political pundits and economists debate the wisdom of letting the Bush-era tax cuts run out, effectively raising the tax rate for millions of businesses and individuals just as the economy is still trying to pull out of a recession.  While most reports have focused on the increases to individual’s tax brackets and higher capital gains and dividend taxes, employers should be aware of another increase that may affect their bottom line.  Specifically, the provision that allows employees to exclude up to $5,250 a year in educational assistance that is not directly job-related is set to expire at the end of the year unless Congress takes action.      This provision, often referred to as Section 127 after its tax code citation, 26 U.S.C. §127, applies to both undergraduate and graduate work that is not directly related to the employee’s job.  (Job-related educational assistance is also tax deductible as an employer business expense.)  In order for the exclusion to apply, employers must have a separate, written plan for education assistance that does not discriminate in favor of highly compensated employees.  In addition, employers must not exceed specific limits on assistance to owners, their spouses, or dependents.       Section 127 was originally passed in 1978 as a temporary tax measure.  Since then, it has expired and been extended repeatedly, creating administrative problems in the years when it was retroactively reinstated.  In some years, the exclusion applied only to undergraduate course work and excluded graduate level courses. However, under President Bush, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) amended Section 127 to extend the exclusion for employer-provided educational assistance to graduate courses and made “permanent” the exclusion as applied to both undergraduate and graduate education.       Unfortunately, the EGTRRA also contained an automatic sunset, or expiration, provision of December 31, 2010, so that the so-called permanent extension was still just a temporary one, albeit one that lasted ten years.  Congress is considering a truly permanent extension that does not contain a sunset provision (proposed S. 2851 in the Senate and H.R. 5600 in the House), but as the rancorous debates over extensions to unemployment benefits have shown, Congress may not have the stomach to pass any bill that appears to add to the ever-expanding federal deficit.  HR Matters will keep you updated.  (For more information on the tax aspects of employer-provided educational assistance, please see Educational Assistance, Chapter 505, note 12.) 

Dol Clarifies Who Can Be Considered Like a Parent Under fmla (9/10)

Domestic partners, as well as others who do not have a biological or legal relationship can take FMLA leave for a child that they care for or financially support.

The Department of Labor (DOL) recently issued an “Administrator’s Interpretation” that is intended to clarify the definition of who can be considered “in loco parentis” and eligible to take Family and Medical Leave Act (FMLA) leave to care for newborns or newly adopted or placed children or to care for seriously ill children.  The new DOL directive, issued by the DOL Deputy Administrator, seems to expand the definition of who may be considered “in loco parentis” beyond what is stated in the FMLA regulations and also explains that same-sex and opposite-sex domestic partners can be covered. FMLA Statute and Regulations Define Relationship Under the FMLA, an eligible employee is entitled to take up to 12 workweeks of unpaid leave during any 12-month period to care for a son or daughter who has a serious health condition.  In addition, an eligible employee is entitled to take up to 12 workweeks of unpaid leave during any 12-month period to care for a newborn son or daughter or in connection with the placement of a son or daughter with the employee for adoption or foster care.  “Son or daughter” is defined by the FMLA statute as a biological, adopted, or foster child, stepchild, legal ward, or a child of a person standing “in loco parentis” (roughly translated in place of the parent).  According to the FMLA regulations, a person is considered to be “in loco parentis” if he has day-to-day responsibilities to care for and financially support a child.  A biological or legal relationship is not necessary.  Interpretation Expands on Regulations The DOL Administrator’s Interpretation is intended to help employers and employees understand how the FMLA applies when there is no legal or biological parent-child relationship.  The Administrator looks first at Congress’ intent when it passed the FMLA.  According to the Senate Report on the law, Congress stated that the definition of “son or daughter” was intended to be “construed to ensure that an employee who actually has day-to-day responsibility for caring for a child is entitled to [FMLA] leave even if the employee does not have a biological or legal relationship to that child.”  The Administrator also examines the factors that courts rely on to determine “in loco parentis,” including the age of the child; the degree to which the child is dependent on the person claiming to be standing in loco parentis; the amount of support, if any provided; and the extent to which duties commonly associated with parenthood are exercised.         The Administrator then turns to the FMLA regulations and acknowledges that while the regulations state that “in loco parentis” is defined to include those people with day-to-day responsibilities to care for and financially support a child, the Administrator is taking the position that the regulations do not require an employee to provide both day-to-day care and financial support.  An employee can show that she provides day-to-day care of her domestic partner’s child, without financial support, and still meet the in loco parentis definition.  Similarly, an employee who will share equally in the care of a child with her same-sex partner, but who does not have a legal relationship with a child, would be entitled to take leave to bond with a child following adoption or foster care placement.  The Administrator also points out that the FMLA does not restrict the number of parents a child can have under the FMLA, so that even if a child’s biological parents are still involved in a child’s care, an employee who is a stepparent or domestic partner could have FMLA rights.        The Administrator also provides other example situations in which an “in loco parentis” relation may be found, including where a grandparent takes in a grandchild and assumes ongoing responsibility for raising the child because the parents are incapable of providing care, or where an aunt assumes responsibility for raising a child after the death of the child’s parents.  However, an employee who cares for a child while the child’s parents are on vacation would not be considered to be “in loco parentis” to the child. Practical Effect of Administrator’s Interpretation This Administrator’s Interpretation does not have the same force of law as the FMLA statute or its implementing regulations.  Courts may choose to ignore it, for example, if they are considering the issue of who stands “in loco parentis.”  However, the interpretation is important because it lets you know what the DOL’s position is on the topic, and you will have to deal with the DOL on an FMLA issue before you have to go to court over it.  So, you should be prepared to apply the interpretation when you are determining whether an employee meets the criteria of “in loco parentis” for a child.