Fall is in the air in Washington -- and so are the winds of change. Following months of promises, the long-awaited Republican tax plans from the House and Senate have been released. And while the respective plans do have differences, they share a central thesis: tax cuts for middle-class families and corporations.
Both the House and Senate GOP tax reforms would simplify the individual tax brackets and narrow them from the current seven tiers to just four. As for corporations, it'd reduce peak marginal corporate income-tax rates from 35% to 20%. The idea in both instances is that if corporations have more money left over after paying tax, they're liable to hire, expand, and boost wages. Similarly, if workers have more disposable cash, they'll be able to spend more. Since the U.S. economy relies on consumption for about 70% of GDP, Republicans believe this plan could yield consistent GDP growth of 3%.
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Not everyone wins when the tax code is changed
But as we've learned from healthcare reform and every single previous version of tax reform, be it passed or proposed, not everyone can come out a winner. The simplification of the individual tax code means the elimination or reduction of a number of critical credits and deductions. The GOP aims to make up for this with a beefier standard deduction ($12,000 for single filers and $24,000 for married couples filing jointly), but that still may not cut it for some folks who could actually see their tax bill go up.
One group that could be hit pretty hard are students. The GOP tax plan would eliminate the Lifetime Learning Credit, and remove the deductibility of student-loan interest and tuition and fees. This could make life considerably tougher for college students.
But there's a much less front-and-center tax change in the GOP bill that could really catch college students by surprise. Namely, the elimination of employer-provided tuition assistance as a tax-exempt item.
A subtle change to employer-sponsored tuition assistance could mean a tax increase
Under current law, employers can give up to $5,250 to their employees each year to help pay for their tuition costs without a need for their employees to claim this $5,250 as income. (Employers can choose to give more, but the employee would then have to claim any additional beyond $5,250 as income.) Employers have welcomed the ability to entice new and existing talent with financial assistance toward a college education, with more than 60% of employers offering some form of tuition assistance, according to EdAssist's Annual Review of Employer Tuition Assistance Programs. In total, roughly 1 million students are currently receiving tuition assistance from their employer.
However, the GOP tax bill would remove the ability to sweep this income under the rug. Workers receiving tuition assistance would now have to claim every cent they receive from their employer as income, probably boosting their taxable income in the process, unless they're lucky enough to be covered by the bump up in the standard deduction.
Some of the most consumer-facing companies in America offer some form of tuition assistance, meaning if you work for one of these prominent companies, and you receive some form of financial assistance in furthering your education, you could be one the 1 million students who could face a higher tax rate under the GOP bill.
This tax change could be worrisome for employees at these 10 consumer-facing companies
Here are 10 top consumer-facing businesses whose employees could be faced with a higher tax bill if the GOP tax plan becomes law. But be aware: The impact could be felt well beyond these 10 visible brands.
- Wells Fargo (NYSE: WFC): The embattled banking giant offers its employees up to $5,000 in annual tuition reimbursement for eligible expenses. Perhaps the only consolation here is its employees already work at a bank and won't have to go far for the extra cash needed to pay a potentially higher tax bill.
- Starbucks (NASDAQ: SBUX): Begun in 2014, the Starbucks College Achievement Plan partnered with Arizona State University to allow Starbucks employees the opportunity to earn their degree online. The coffee giant anticipates contributing up to $3,000 to $4,000 per year, per partner, toward this goal.
- Comcast: Employees of America's most hated company (most years, at least) can be reimbursed up to $5,750 a year for eligible undergraduate and graduate expenses, including tuition and book fees.
- AT&T (NYSE: T): Among the most generous employers for tuition assistance is wireless kingpin AT&T, which offers its employees up to $3,500 a year for approved courses, and a lifetime maximum of $20,000 for undergraduate programs and $25,000 for graduate programs.
- UPS: Not only can you trust "brown" to deliver your packages on time, but you can also count on UPS's "Earn and Learn Program" to help employees with up to $5,250 a year in tuition assistance, with a lifetime maximum of up to $25,000. However, the program is only available in certain locations, and for certain positions within the company.
- Verizon (NYSE: VZ): Noticing the trend with content companies? Verizon, bearer of the most expansive 4G LTE wireless network in the U.S., will reimburse up to $8,000 a year for tuition. According to Verizon, by way of USA Today, the company provided more than $94 million in tuition assistance to its employees in 2015.
- Best Buy (NYSE: BBY): Big-box retailer Best Buy offers full-time employees who've been with the company at least six months, and who work at least 32 hours a week, up to $3,500 a year for undergraduate programs, and $5,250 a year for graduate programs.
- Bank of America (NYSE: BAC): National banking behemoth Bank of America one-ups Wells Fargo ever so slightly by offering up to $5,250 in educational expense reimbursement for employees who've been with the company for a minimum of six months.
- Apple (NASDAQ: AAPL): The "fruit" company that's grown into the largest publicly traded company in the world also knows how to take care of its employees. According to Glassdoor, tech giant Apple contributes up to $5,250 in tuition assistance to its employees per year.
- T-Mobile: No surprise here with another wireless provider stepping up for its employees. If T-Mobile approves your classes and you maintain a passing grade, and you've worked for the company at least 90 days, you're eligible to receive $5,250 in annual education reimbursement as a full-time employee, and up to $2,500 as a part-time employee.
At this point, there's no guarantee that the GOP tax plan in its current form will become law. It's pretty common to see multiple changes and iterations before tax reforms are signed into law. Nonetheless, losing the ability to sweep this educational reimbursement under the rug would be a big blow to approximately 1 million students, and it could adversely affect the ability of consumer-facing companies like those listed here to retain talent.
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Sean Williams owns shares of Bank of America. The Motley Fool owns shares of and recommends Apple, Starbucks, and Verizon Communications. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Comcast and T-Mobile US. The Motley Fool has a disclosure policy.