United States General Accounting Office

GAO Report to the Chairman

Committee on Ways and Means

House of Representatives

December 1996 TAX EXPENDITURES

Information on

Employer-Provided

Educational Assistance

G O A

years

1921 - 1996

GAO/GGD-97-28

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-274817 

December 19, 1996

The Honorable Bill Archer

Chairman, Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

This report responds to your request for information about

employer-provided educational assistance between 1992 and 1994 under

section 127 of the Internal Revenue Code (IRC).1

 In this report, we provide

information about employer-provided educational assistance, including

the characteristics of employers providing educational assistance, such as

the number of providers and their size, and employees eligible for and

receiving it, such as the number of recipients and their level of study. As

requested, we also identify other tax provisions related to

employer-provided educational assistance and discuss the differences

between them and section 127.

To compile the profile of educational assistance providers and recipients,

we analyzed data from the Internal Revenue Service (IRS), the Department

of Education’s National Postsecondary Student Aid Study (NPSAS), and

Department of Labor’s Bureau of Labor Statistics (BLS) reports. Our

discussion of tax provisions related to employer-provided educational

assistance is primarily based on our review of relevant sections of the

Internal Revenue Code and IRS and Department of the Treasury rulings and

regulations.

Background Employer-provided educational assistance refers to educational expenses,

such as courses, tuition, and books, that are paid for either directly by the

employer or indirectly through reimbursement to employees. Under

section 127 of the IRC, the amount for educational assistance that

employees receive from their employers is generally excludable from

employees’ gross income. Generally, the assistance may be for any type of

course, except those related to sports, games, or hobbies, and covers such

expenses as tuition, books, supplies, and equipment.

Section 127 Was Enacted

in 1978

Section 127 went into effect in 1979 with passage of the Revenue Act of

1978. Three major reasons for the enactment of section 127 were cited in a

1

Section 127 expired Dec. 31, 1994, and was extended until June 1997 in Aug. 1996 as part of the Small

Business Job Protection Act of 1996.

Page 1 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

June 1988 Department of the Treasury report: (1) to reduce the complexity

of the tax system, (2) to reduce possible inequities among taxpayers, and

(3) to provide opportunities for upward mobility for less educated

individuals.2

 This report also explained that prior law required individuals

to pay income taxes on the amount paid for training for new jobs or

occupations if an employer had paid for it, a situation that was considered

inequitable for those least able to pay but most in need of the education.

Since section 127 was first authorized, it has expired and has been

extended eight times. Several changes were made by these extensions,

including setting an annual limit on the amount that can be excluded from

employees’ gross income (currently $5,250)3

 and establishing an annual

reporting requirement (Form 5500).4

 Based on our 1989 report which

noted an absence of data on the use of employer-provided educational

assistance, IRS developed Schedule F to supplement Form 5500.5

 This form

and schedule require employers to report information on (1) the number

of employees eligible for such assistance, (2) the number of employees

who received such assistance, and (3) the value of the assistance provided.

The series of expirations and extensions of section 127 has contributed to

problems with the quality of available IRS data. For example, the 1993

extension was not enacted until several months after section 127 had

expired and the tax filing year had ended. Companies experienced

uncertainty about how and whether to report educational assistance as

employee income and withhold taxes from it. Some companies included

assistance in employees’ income and withheld taxes, others did not.

Ultimately, the extension was passed retroactively, which resulted in those

companies that had reported the assistance as employee income having to

refile employee wage statements and tax returns. Because of this, IRS has

acknowledged that some employers may not have filed the required IRS

forms, thus information about section 127 reported to IRS may not be

complete. However, IRS officials told us that they believe most employers

complied with the reporting requirements during the last expiration

period.

2

See Report to the Congress on Certain Employee Benefits Not Subject to Federal Income Tax,

Department of the Treasury, June 1988.

3

Section 1162(a)(1) of the Tax Reform Act of 1986 (P.L. 99-514) raised the annual limit to $5,250 and

required employers to report the number of highly compensated employees participating in the

program; it also extended the program to 1987.

4

This was established as an annual reporting requirement under section 6039D of the IRC.

5

See Tax Policy: Insufficient Information to Assess Effect of Tax Free Education Assistance

(GAO/GGD-89-76, June 1989).

Page 2 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Other Tax Treatment of

Educational Assistance

Aside from section 127, three tax provisions generally determine the tax

treatment of educational assistance: Section 117—Qualified Scholarships;

Section 132—Certain Fringe Benefits; and Section

62(a)(2)(A)—Reimbursed Expenses of Employees. Under section 117,

educational assistance provided by qualified educational institutions to

employees and their dependents can be excluded from employees’ gross

income. Under section 132, employees can exclude employer-provided

educational assistance from their gross income if it qualifies as a working

condition fringe benefit. A working condition fringe benefit is any property

or service an employer provides to an employee that, had the employee

paid for such property or services, the employee could deduct the

payment from his/her income as a business expense. Under section 62,

employees can exclude educational assistance from their income if the

assistance is provided as part of an employer’s “accountable plan,” which

requires that assistance be business-related, expenses be documented, and

employees be required to return any excess payments.6

 These three

provisions do not have a dollar limit on the amount of assistance that can

be excluded.

Otherwise, employer-provided educational assistance must be included in

employees’ gross income. Under certain conditions, however, employees

may deduct educational assistance that has been included in their income.

Decisions as to whether such assistance included in an employee’s gross

income can be deducted depend on whether the assistance qualifies as a

business expense under section 162 of the IRC. Section 162 discusses the

circumstances under which an employer’s educational assistance

expenses are related to an employee’s job and therefore are deductible.7

 It

allows individuals who itemize deductions on their tax returns to deduct

qualifying job-related educational expenses and other miscellaneous

itemized deductions from gross income. Moreover, qualifying educational

expenses and other miscellaneous itemized deductions are deductible only

to the extent that they exceed 2 percent of the individual’s adjusted gross

income.

Figure 1 illustrates an IRS aid to assist taxpayers in determining whether

educational expenses are deductible.8

6

See page 18 for more information about accountable plans.

7

See app. I for IRS examples of qualifying job-related expenses.

8

See IRS Publication 508, Educational Expenses.

Page 3 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Figure 1: Process for Determining Deductibility of Educational Expenses From Individual Taxes

Is the 

education

needed to meet the 

minimum educational 

requirements of your 

trade or

 business?

Is the 

education

required by your

employer, or by law,

to keep your

present salary,

status, or 

job?

Your

educational

expenses are

deductible

Yes Yes

No No

Is the 

education

part of a study

program that can

qualify you in a

new trade or

business?

Yes

No

Your

educational

expenses are

not

deductible

Yes

1

No

2 3 4

Does the 

education 

maintain or

improve skills

required in doing

your present

work?

Source: IRS Publication 508, Educational Expenses.

Results in Brief According to IRS data, employers annually filed over 3,200 returns that

reported information about educational assistance they provided their

employees during 1992 through 1994.9 IRS officials told us that this

included most of the employers who provided section 127 assistance but

that some employers may not have filed because of confusion resulting

from the series of section 127 expirations and extensions.

The dollar amount of education assistance employers reported increased

steadily over the 3 years from $525.3 million for 1992 to $691.3 million for

1994. However, the increase may be related to the increase in the

percentage of employer returns that reported the amount of assistance to

IRS for the 3-year period, from 65 percent for 1992 to 80 percent for 1994.

9

IRS provided data from all 1992 and 1993 returns and data from 1994 returns it had collected and

processed through May 31, 1996. IRS officials told us they considered the 1994 returns to represent

about 90 percent of the 1994 returns they ultimately expect to receive.

Page 4 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Employers filing returns varied in size, type of business, and amount of

assistance provided. Large employers, those employing 250 or more

employees, provided 99 percent of the dollar amount of the reported

assistance to 98 percent of the employees who received it.

IRS data showed that about 900,000 employees received employer-provided

educational assistance annually during 1992 through 1994. However, few

employees eligible for educational assistance under section 127 actually

received it. Data we reviewed did not provide information that explained

the level of participation. The percentage of the eligible employees that

employers reported as having received educational assistance varied from

8 percent to 9 percent for the 3-year period, according to IRS data.10

According to NPSAS data, 74 percent of employees receiving educational

assistance in academic year 1992 to 1993 were undergraduates. About

64 percent of the undergraduates who identified their occupation were in

clerical or technical occupations. Of employees receiving assistance who

were graduate students and identified their occupation, about 89 percent

were in professional, manager/ administrative, or teaching occupations.

Generally, four tax provisions apply to employer-provided educational

assistance: Sections 127, 117, 62, and 132.11 These sections allow

employers to provide educational assistance to their employees and to

deduct the cost of the educational assistance provided as a business

expense in determining their tax liability. The four provisions also allow

employees receiving the assistance to exclude the value of qualifying

assistance from their federal gross income.

The major differences between section 127 and the three other provisions

are related to the type of education supported, employee eligibility, limits

on the value of assistance provided, and the ease of administration. Unlike

sections 62 and 132, section 127 makes no distinction between job-related

and nonjob-related education and is administratively less burdensome.

Sections 127, 62, and 132 apply to all employees. Section 117 applies only

to employees of qualified educational institutions and their spouses and

dependents, although both job-related and nonjob-related education are

covered. Section 127, unlike the other tax provisions, has a $5,250 cap on

the amount of educational assistance that can be excluded from income.

10Employers determine who is eligible for educational assistance.

11Sections 62 and 132 also require referring to section 162, which delineates what constitutes

job-related education and what is required for it to be deductible as a business-related expense.

Page 5 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Objectives, Scope,

and Methodology

Our objectives were to provide information about (1) employer-provided

educational assistance, including the characteristics of employers

providing educational assistance and employees eligible for and receiving

it, and (2) other tax provisions related to employer-provided educational

assistance and how they differ from section 127.

To achieve the first objective, we identified and obtained relevant data. We

did this by contacting the IRS, searching the Internet to identify relevant

organizations and research, and contacting various associations.

Because no one source of information provided comprehensive data, we

used available data from a variety of sources. We relied primarily on data

from Form 5500 and Schedule F, provided to us by IRS, and data from NPSAS

to develop our profile of employers and employees. We also used

information about the eligibility of employees for educational assistance

from BLS reports on employee benefits.

The IRS data consisted of information about employers providing

educational assistance and employees eligible for and receiving section

127 assistance. Employers reported this information to IRS on Form 5500

and its Schedule F for 1992 through 1994. IRS provided us with a database

of these employer returns for 1992 and 1993, and for 1994 returns filed

with IRS through May 31, 1996, which IRS officials told us represented

90 percent of the data it expects to receive from employers for 1994. We

used these data to develop information about employer characteristics,

such as how many programs employers have that offered educational

assistance and employer size. We also used these data to identify the

number of employees eligible for and receiving this assistance and the

dollar amount of the assistance provided.

NPSAS data consisted of information about postsecondary student aid,

including section 127 assistance, from postsecondary students, their

parents, and educational institutions. The Department of Education’s

National Center for Education Statistics (NCES) conducted this national

study for the academic year 1992 to 1993 and compiled the results in the

NPSAS database. We obtained the NPSAS database from the NCES and used

the data primarily to develop information on characteristics of employees,

such as their level and type of education.

The BLS reports contained estimated data about employee eligibility for

educational assistance. This information was collected by BLS as part of its

surveys on employee benefits in small, medium, and large private

Page 6 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

establishments. These reports were done over a 2-year period: the survey

of employee benefits in medium and large private establishments covered

1993, and the survey of employee benefits in small private establishments

covered 1994.

We did not verify the validity or reliability of the data collected by IRS or

the other agency study sponsors. Because of the series of expirations and

extensions of section 127, some employers may not have filed Form 5500

and Schedule F with IRS as required. Further, not all employers who filed

provided all required data on Form 5500 and Schedule F. For example, of

the employer returns that reported providing educational assistance,

65 percent reported the amount of assistance in 1992; 74 percent, in 1993;

and 80 percent, in 1994. Appendix II includes a list of employer and

employee characteristics and the percentage of returns that reported this

information for 1992, 1993, and 1994.

In addition, the analyses generated from each of the three different data

sources cannot be compared with one another because of variations in

data collection methods, definitions, populations covered, and periods

covered. Appendix II explains in detail the data sources we used including

populations covered, sampling errors as appropriate, and data limitations.

To obtain additional information about the databases and the results of

our analyses of them, we interviewed officials from the Department of the

Treasury, IRS, the Department of Education, and BLS. We also interviewed

officials from selected associations, including the National Association of

Independent Colleges and Universities, the American Payroll Association,

the American Society for Training and Education, and the Institute for

Higher Education Policy.

To achieve the second objective, we reviewed relevant sections of the IRC,

and IRS and Department of the Treasury rulings and regulations pertaining

to those sections. We also interviewed officials from the Department of the

Treasury, IRS, and selected associations.

We did not evaluate the effectiveness of section 127 in promoting

employee skills as it was beyond the scope of this assignment.

We did our work from April through July 1996 in accordance with

generally accepted government auditing standards. We obtained

comments on a draft of this report from IRS. These comments are

discussed at the end of this report.

Page 7 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Characteristics of

Employers Providing

Educational

Assistance

According to IRS, for each of the 3 years we reviewed, employers filed over

3,200 returns that reported information about educational assistance they

provided their employees under section 127. IRS officials believe that this

number included most of the employers who provided section 127

assistance but note that some employers may not have filed because of

confusion resulting from the series of section 127 expirations and

extensions. The employers included auto manufacturers, hospitals and

medical centers, utilities, telecommunications and electronics companies,

banks, and other types of businesses.

The dollar amount of educational assistance employers reported increased

steadily for the 3-year period we reviewed. It increased from $525.3 million

for 1992 to $691.3 million for 1994. This increase may be related to the

increase in the percent of employers who reported the amount of

assistance to IRS for the 3-year period. For 1992, the first year IRS required

employers to report data on Schedule F of Form 5500, employers filed

3,556 returns, 65 percent of which (2,294) reported the amount of

educational assistance they provided employees. The reporting rate

increased to 80 percent for the 1994 returns for which we have data. Table

1 shows the number of all returns employers filed and the number and

percentage of returns that showed the amount of assistance provided, as

well as the amount reported, for the 3 years we reviewed.

Table 1: Number of Returns and

Number and Percentage of Returns

With Dollar Amount of Section 127

Assistance Employers Provided

Employees, as Reported to IRS,

1992-1994

Number and percent of

returns reporting

amount of assistance

Dollars in millions

Year Total returns filed

Amount of

assistance

provided

1992 3,556 2,294 65% $525.3

1993 3,336 2,478 74% 636.4

1994a 3,234 2,590 80% 691.3

a1994 returns received and processed by IRS through May 31, 1996.

Note: Differences from one year to the next should be interpreted with caution. The percentage of

returns reporting the dollar amount of assistance provided employees varied from year to year.

Source: GAO analysis of IRS Form 5500 and related Schedule F data.

On a per-return basis, the total amount of educational assistance and the

total number of employees receiving it varied widely for each of the 3

years we reviewed, according to IRS data. For employer returns that

reported the amount of educational assistance provided to all employees,

Page 8 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

IRS data showed total annual amounts ranging from less than $500 to total

amounts of more than $10 million. Of those returns that reported the

number of employees receiving educational assistance, the total number of

recipients ranged from fewer than 10 to more than 10,000. Overall,

employer-provided educational assistance per recipient averaged $1,081

for 1992, $1,046 for 1993, and $1,253 for 1994.

Employers Providing

Assistance Varied in Size

According to IRS data, employers providing section 127 assistance ranged

in size from those with fewer than 50 employees to those with more than

100,000. Our analysis showed that large employers, those with 250 or more

employees, accounted for over 75 percent of the returns that reported the

amount of assistance provided annually for the 3-year period we reviewed.

These employers provided 99 percent of the dollar amount of section 127

assistance reported to IRS for 1992 through 1994.12 Figure 2 shows the

distribution of the reported dollar amount of section 127 assistance by

employer size.

12We used BLS’s definition of large employers, which is employers with 250 or more employees.

Page 9 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Figure 2: Reported Dollar Amount of

Section 127 Assistance Provided, by

Employer Size, 1992-1994

0

200

400

600

800

$1.5 $4.4

$518

$1.5 $3.6

$631

$1.6 $4.5

$685

Size of employer and dollar amount of assistance

Small employers < 100 Medium employers 100-249 Large employers > 250

1992

1993

1994

(Dollars in millions)

Note 1: Small employers: fewer than 100 employees; medium employers: 100 - 249 employees;

and large employers: 250 or more employees.

Note 2: Differences from one year to the next should be interpreted with caution. The percentage

of returns reporting the dollar amount of assistance provided employees varied from year to year.

See app. II.1 for additional information.

Source: GAO analysis of IRS Form 5500 and related Schedule F data.

Page 10 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

In Total, Medium and Large

Employers Had More

Full-Time Employees

Eligible for Educational

Assistance Than Did Small

Employers

According to BLS data, medium and large employers (100 or more

employees) in total reported a higher number of their employees were

eligible for educational assistance than small employers reported.13 BLS

estimated that 20.8 million full-time employees of medium and large

employers and 13.4 million full-time employees of small employers were

eligible for job-related educational assistance. It also estimated that

6.3 million full-time employees of medium and large employers were

eligible for nonjob-related educational assistance compared to 2 million

full-time employees of small employers who were eligible.

BLS estimated the number of part-time employees eligible for educational

assistance was almost the same, regardless of employer size. About

1.9 million part-time employees of medium and large employers and

1.9 million part-time employees of small employers were estimated to be

eligible for job-related education. BLS also estimated that about 440,000

part-time employees of medium and large employers were eligible for

nonjob-related educational assistance compared to almost 400,000

part-time employees of small employers who were eligible. (Additional BLS

information on employee eligibility is in appendix III.)

Characteristics of

Employees Eligible

for and Receiving

Employer-Provided

Educational

Assistance

The number and percentage of employees eligible for employer-provided

educational assistance who received it varied slightly for the 3-year period

we reviewed, according to IRS data. Employer returns filed with IRS showed

that the reported number of employees eligible for assistance under

section 127 ranged from 11,208,411 for 1992 to 9,899,354 for 1994 and that

about 900,000 employees received assistance in each of the 3 years. The

percentage of eligible employees who received educational assistance

varied from 8.25 percent for 1992 to 9.11 percent for 1993 to 8.40 percent

for 1994. Figure 3 shows the reported number of employees eligible for

educational assistance and receiving it.14

13BLS recognizes that eligibility criteria for educational assistance, such as seniority, vary by employer,

and it therefore relies on employers determining employee eligibility.

14Note that numbers in Figure 3 are rounded to the nearest 100,000.

Page 11 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Figure 3: Number of Employees

Reported to IRS as Eligible for and

Receiving Section 127 Assistance,

1992-1994

0

2

4

6

8

10

12

11.2

10.4

9.9

0.9 0.9 0.8

(Number of employees in millions)

1992 1993 1994

Eligible employees

Recipient employees

Note 1: Differences from one year to the next should be interpreted with caution. The percentage

of returns reporting the number of employees eligible for assistance and the number of

employees receiving it varied from year to year. See app. II.1 for additional information.

Note 2: Numbers are rounded to the nearest 100,000.

Source: GAO analysis of IRS Form 5500 and related Schedule F data.

Nearly All Section 127

Recipients Worked for

Large Employers

In each of the 3 years we reviewed, over 95 percent of the reported

recipients of section 127 assistance worked for large employers, according

to IRS data. For 1992, employers reported that 96 percent of section 127

recipients worked for large employers. For both 1993 and 1994, employers

reported that 99 percent of the recipients worked for large employers.

Figure 4 shows the distribution of recipients by employer size.

Page 12 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Figure 4: Number of Reported Section

127 Recipients by Employer Size,

1992-1994

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

Small employers < 100 Medium employers 100-249 Large employers > 250

(Number of employees in millions)

Size of employer and number of employees

1992

1993

1994

884,485

937,172

822,902

4,012 1,684 1,509

36,338 6,071 6,248

Note 1: Small employers: fewer than 100 employees; medium employers: 100 - 249 employees;

and large employers: 250 or more employees.

Note 2: Differences from one year to the next should be interpreted with caution. The percentage

of returns reporting the number of recipients varied from year to year. See app. II.1 for additional

information.

Source: GAO analysis of IRS Form 5500 and related Schedule F data.

Undergraduate Students

Received More Than Half

of Total Section 127

Assistance

According to NPSAS data, 74 percent of full-time employees receiving

educational assistance in academic year 1992 to 1993 were

undergraduates. Our analysis of the NPSAS data showed that about 337,000

of the estimated 456,000 employees who were enrolled in educational

institutions, responded to the NPSAS survey, and reportedly received

Page 13 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

section 127 assistance were considered undergraduate students.15 These

undergraduates received an estimated $345.9 million in assistance, nearly

60 percent of the estimated $597.3 million provided to all section 127

recipients. Table 2 shows the estimated amount and percentage of section

127 recipients by student level.

Table 2: Estimated Percentage and

Dollar Amount of Section 127

Assistance and Number of Recipients,

by Student Level, Academic Year

1992-1993

Amount of assistance Number of recipients

Dollars in millions

Undergraduate $345.9 58% 336,880 74%

Graduate $251.4 42% 119,210 26%

Total $597.3 100% 456,090 100%

Source: GAO analysis of NPSAS:93 data.

Most Recipients Worked

for Private-Sector

Employers

Further analysis of the NPSAS data showed that 446,000 (almost 98 percent)

of the estimated 456,090 Section 127 recipients identified their employers.

The employers of an estimated 329,000 undergraduate employees and

117,000 graduate employees were identified.

Almost 75 percent of section 127 undergraduate recipients who identified

their employers worked for private-sector employers. An estimated

202,000 recipients who were undergraduates worked for private sector

for-profit employers. Additionally, an estimated 43,000 undergraduate

recipients worked for private nonprofit employers. Figure 5 shows the

estimated number and percentages of undergraduate recipients by

employer type.

15The NPSAS data covered employees whose employer-provided educational assistance was for

courses only provided by educational institutions. IRS data included all education received by

employees, regardless of the source. This difference may explain the discrepancy between the two

data sources in the number of employees reported as having received assistance under section 127.

Page 14 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Figure 5: Estimated Number and

Percentage of Section 127

Undergraduate Recipients by

Employer Type, Academic Year

1992-1993

13.2%

6.8%

61.3%

6.8%

11.8%

Federal government

(22,330)

State government

(22,530)

Private, nonprofit

(43,460)

Local government

(38,960)

Private, for-profit

(201,640)

Note: Employers of 328,920 undergraduates were identified for academic year 1992-93.

Source: GAO analysis of NPSAS:93 data.

Over 65 percent of graduate-level section 127 recipients worked in the

private sector. More than 58,000 of an estimated 116,000 graduate students

worked for private sector for-profit employers, and an estimated 18,000

others worked for private nonprofit employers. Figure 6 shows the

estimated number and percentages of graduate recipients by employer

type.

Page 15 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Figure 6: Estimated Number and

Percentage of Section 127 Graduate

Recipients by Employer Type,

Academic Year 1992-1993

15.9%

14.3%

49.9%

8.2%

11.7%

Federal government

(9,520)

State government

(16,720)

Private, nonprofit

(18,590)

Local government

(13,620)

Private, for-profit

(58,140)

Note: Employers of 116,590 graduates were identified for academic year 1992-93.

Source: GAO analysis of NPSAS:93 data.

Most Undergraduate

Recipients Were in Clerical

or Technical Occupations,

and Most Graduates Were

in Professional or Teaching

Occupations

Our analysis of the NPSAS data also showed that most

undergraduates—about 64 percent (125,000)—worked for private,

for-profit employers in clerical or technical occupations, whereas most

graduates—about 89 percent (64,000)—were in professional,

manager/administrative, or teaching occupations.16 Figure 7 shows the

estimated number of section 127 recipients by identified occupations and

student level.

16The occupations for 59 percent of the recipients—an estimated 195,960 undergraduates and 72,180

graduates—were identified. See appendix II for the specific estimates for the characteristics reported.

Page 16 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Figure 7: Estimated Section 127 Recipients by Identified Occupation and Student Level, Academic Year 1992-1993

0

10

20

30

40

26

29

31

25

14

8

20

14

37

15

18

14

16

Clerical

 financial

 Technical

Noncomputer

Clerical

 other

Technical

 computer

School

 Teacher

Manager/

 Adm other

aa aa a aa

(Number in thousands)

Undergraduates (N = 125,000) Undergraduates (N = 71,000)

Graduates (N = 8,000) Graduates (N = 64,000)

Technical/Clerical Professional

Clerical

secretary

Professional

 medical

Professional

 other

Professional

 engineer

 Recipients with identified occupations (268,140)

aThe response rate was too low to provide an estimate.

Note: Of an estimated 456,090 academic year 1992-93 recipients, the occupations for 59 percent

were identified. Numbers do not add up to totals due to rounding.

Source: GAO analysis of NPSAS:93 data.

Tax Provisions

Related to

Employer-Provided

Educational

Assistance

Four provisions of the IRC describe the circumstances under which

employers can exclude or deduct the cost of educational assistance from

their employees’ gross income. To the extent the assistance meets

requirements of these provisions, the IRC provisions also allow qualifying

employees to exclude the amount of the assistance from their federal

Page 17 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

gross income. However, the requirements and those who can benefit from

them vary by provision.

Four Tax Provisions Apply

to Employer-Provided

Educational Assistance

The following tax provisions apply to employer-provided educational

assistance:

• Section 127: Educational Assistance Programs,

• Section 117: Qualified Scholarships,

• Section 132: Certain Fringe Benefits, and

• Section 62(a)(2)(A): Reimbursed Expenses of Employees.

These provisions generally allow employers to deduct the cost of

educational assistance provided to their employers from their taxes as an

allowable deduction for necessary business expenses. Further, such

assistance if excludable from gross income, is not subject to social

security or other federal employment taxes. These provisions also allow

employees receiving the assistance to exclude the value of qualifying

assistance from their federal gross income.

Certain Employer-Provided

Educational Assistance Is

Excludable

Section 127. This section allows employers to provide educational

assistance to their employees without having to include the value of the

assistance as part of the employees’ gross income. Educational assistance

under this provision does not have to be job-related; however, the

assistance generally cannot be provided for education related to a sport,

game, or hobby. Assistance excludable from taxes covers education

expenses incurred by employees (tuition reimbursement programs) as

well as by employers on their behalf or provided directly by employers to

education providers. In addition, there must be written plans for the

program and employees must be notified of the program’s existence. The

section also has a number of specific restrictions that must be met for the

program to be considered valid.17 Under section 127, taxpayers may

exclude up to $5,250 a year of this assistance from their gross income.

Employees whose assistance exceeds this cap can then use sections 62 or

132, provided they meet the job-relatedness requirements of those

provisions. The recent extension of section 127 includes

employer-provided assistance for undergraduate and graduate education,

although it ends coverage of graduate assistance as of mid-1996.

17The program cannot offer employees a choice between educational assistance and taxable

remunerations; it cannot discriminate in favor of highly compensated employees or their dependents

as defined under section 414(q) of the IRC; and no more than 5 percent of the assistance may be for

shareholders or owners who own more than 5 percent of the company.

Page 18 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Qualified Scholarships and

Tuition Reductions Are

Excludable

Section 117. This section allows qualifying employees of educational

institutions to exclude the value of “qualified scholarship and tuition

reductions” from their gross income.18 Qualified scholarship and tuition

reductions include tuition and related expenses, e.g., tuition and fees to

enroll or attend an educational institution and fees, books, supplies, and

equipment required for courses of instruction at an educational institution.

Section 117 generally provides that

• the exclusion applies to scholarship and tuition reductions provided to

employees for any education below the graduate level (except in the case

of graduate student employees engaged in teaching or research activities

for the institution);

• the exclusion also applies to scholarship and tuition reductions given to

the employees’ spouses or dependents;

• the institution may not discriminate in favor of highly compensated

employees in providing tuition reductions; and

• the exclusion does not apply to amounts received as payment for teaching,

research, or other services by the student required as a condition for

receiving the reduction.

The scholarship or tuition reduction can be for job or nonjob-related

education, and there is no limit on the value of assistance that can be

provided.

Working-Condition Fringe

Benefit Exclusion

Section 132. This section allows employees to exclude from their gross

income employer-provided educational assistance if it is classified as a

“working condition fringe benefit.” According to the IRC, a working

condition fringe benefit is any property or service provided to an employee

to the extent that, if the employee paid for such property or services, that

payment would be deductible under section 162 or 167.19

Section 132 generally provides that

• the educational assistance is allowable as an exclusion only to the extent

that the expenses would have been deductible by the employee as a

business expense under section 162 had the employee paid for the

education; and

• an employer’s cash payment to an employee requires the employee to

(1) use the payment for expenses in connection with a prearranged

18According to Treasury regulations, the term “educational institutions” refers to institutions that

maintain a faculty, curriculum, and an enrolled body of students.

19Section 167 pertains to depreciation and is not relevant to the issue of educational assistance.

Page 19 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

activity or undertaking (for which a deduction is allowable under section

162), (2) verify that the payment is actually used for such expenses, and

(3) return any part not used to the employer, otherwise the payment will

not qualify as a working condition fringe benefit.

There is no limit on the value of assistance that can be provided, and the

assistance can be for undergraduate or graduate education. The essential

requirement is that the education be job-related, as defined by section 162.

Employees would likely use this tax provision should the educational

assistance they receive otherwise meet this provision’s requirements and

exceed the section 127 income exclusion cap of $5,250.

Employee Reimbursed

Expenses May Be Excludable

or Deductible

Section 62 (a)(2)(A). This section allows employees to exclude from

gross income the value of educational assistance provided under an

employer “accountable plan” for reimbursed business expenses. An

accountable plan has three requirements that must be met: (1) there must

a relationship to the business, i.e., meet the requirements of section 162,20

(2) the expenses must be documented, and (3) employees need to return

excess payments. There is no limit on the value of the assistance provided,

and graduates and undergraduates are eligible. Employees would be able

to use this tax provision should the educational assistance they receive

meet the requirements of this section and exceed the section 127 income

exclusion cap of $5,250.

If employer reimbursements for educational assistance are not made

under an accountable plan, the value of the assistance generally cannot be

excluded from an employee’s gross income. However, if the value of the

assistance is included in the employee’s gross income, the employee can

deduct eligible expenses under section 162. Section 162 allows an

individual to deduct certain job-related educational expenses along with

other miscellaneous itemized deductions from gross income, provided

these itemized deductions exceed 2 percent of the individual’s adjusted

gross income.

Comparison of Application

and Restrictions of

Different Sections

The major differences between section 127 and sections 62, 117, and 132

are related to the type of education being supported, employee eligibility,

limits on the value of assistance provided, and the ease of administration.

20As noted earlier, under Section 162, Trade or Business Expenses, the education must be job-related

to be deductible: it has to maintain or improve the employee’s skills as required by the employer or be

required by the employer or law to keep present salary, status, or job. However, if the education

qualifies the employee for a new trade or business or if it meets minimum education requirements of a

trade or business, it is not deductible.

Page 20 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

First, under section 127, employers can provide assistance for job and

nonjob-related education and requires no distinction between them.

Section 117 also applies to job and nonjob-related assistance. Sections 62

and 132 are more restrictive, requiring that educational assistance meet

the business relationship requirements of section 162, that is, be

job-related to be excluded from gross income. Second, the four sections

differ regarding who is eligible for educational assistance. Employers

determine which employees are eligible under sections 127, 62, and 132,

provided that the employers abide by the nondiscriminatory requirements

of the provisions. Section 117 applies only to employees of qualified

educational institutions and their spouses and dependents. Third, the

value of assistance that is provided and excludable from income is limited

to $5,250 under section 127. There are no dollar amount limits under

sections 62, 117, and 132. Table 3 summarizes major similarities and

differences between Section 127 and the three other tax provisions

relevant to employer-provided educational assistance.

Table 3: Major Similarities and

Differences Between Section 127 and

Other Educational Assistance-Related

Tax Provisions

Feature

Tax provision

Type of educational

assistance excludable

from income Persons eligible

Dollar

limit

Section 127:

Employer-provided

educational assistance

Job- and nonjob related Employees only $5,250

Section 117: Scholarships

and tuition reductions

Job- and nonjob related Employees,

spouses, and

dependents

none

Section 62: Employee

reimbursed expenses

Job-related only Employees only none

Section 132: Working

condition fringe benefit

Job-related only Employees only none

Note: Assumes all other requirements of the given tax provision are met.

Source: GAO analysis of the IRC and Treasury regulations.

Administrative Complexity

of Tax Provision

Requirements Differs

Among Four Provisions

Finally, section 127 and the three other provisions differ in terms of the

administrative complexity of the tax provisions’ requirements. According

to IRS and association representatives we interviewed, section 127 is

straightforward and simple relative to the other sections. Section 127 does

not require the employer and employee to demonstrate nor document that

the educational assistance is job-related, as do sections 62 and 132. The

Page 21 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

job-relatedness requirements of section 162 that apply to sections 62 and

132 are not always clear. This lack of clarity has resulted in numerous

rulings by IRS to further define what is meant by job-related education.

IRS reporting requirements are also different under section 127. Employers

are required to file Form 5500 and its Schedule F with IRS to report

information on the assistance. This information consists primarily of the

number of employees, the number who are eligible for assistance, the

number who received the assistance, and the amount of the assistance

provided. Under section 127, employers are not required to document

whether or not the assistance is job-related. On the other hand, association

and corporate representatives told us that the requirements of sections 62

and 132 are burdensome because Treasury regulations require

documentation such as an accountable plan or other job-related

information. In addition, according to the IRC, employers are required to

report the amount of nonjob-related assistance as part of employees’ gross

income on W-2s and to withhold income, unemployment, Social Security,

and other employment taxes. Under all three sections, employees have to

meet the documentation requirements set by their employers, e.g., provide

receipts for course-related expenses.

If employer-provided educational assistance is not excluded from an

employee’s income, the employee may still be allowed to deduct it as a

business-related expense under section 162. The employee can deduct the

value of the assistance if (1) the assistance meets the job-relatedness test

of section 162 and (2) the employee itemizes deductions. The employee

needs documentation to support any income tax deductions for

educational expenses. Employees who do not itemize deductions,

however, cannot claim the deduction and are required to pay tax on the

nonexcludable assistance received. Therefore, educational assistance that

is not excludable or deductible from an employee’s income is to be

reported and taxed.

Page 22 GAO/GGD-97-28 Employer-Provided Educational Assistance
B-274817 

Agency Comments On November 21, 1996, we discussed our draft report with IRS officials who

are responsible for administering the fringe benefit plans, including

employer educational assistance reporting requirements. The officials,

including the Acting Chief Compliance Officer, agreed with the IRS material

in our report.

We are sending copies of this report to Chairmen and Ranking Minority

Members of congressional committees that have responsibilities related to

these issues, the Commissioner of Internal Revenue, and other interested

parties. We will also make copies available to others upon request. The

major contributors to this report are listed in appendix IV. Please contact

me at (202) 512-9044 if you or your staff have any questions about this

report.

Sincerely yours,

Natwar M. Gandhi

Associate Director, Tax Policy

 and Administration

Page 23 GAO/GGD-97-28 Employer-Provided Educational Assistance
Contents

Letter 1

Appendix I 

Examples Illustrating

IRS’ Determination of

Deductibility of

Job-Related

Educational Expenses

as Business-Related

Expenses

26

Appendix II 

Technical Appendix:

Methodology for

Analyzing IRS and

NPSAS Data

27

Three Primary Sources Used: IRS, NPSAS, and BLS 27

IRS Data 27

NPSAS Data 29

BLS Reports 32

Appendix III 

Additional

Information About

Employees

36

Analysis of NPSAS and BLS Data Revealed Additional

Information

36

Appendix IV 

Major Contributors to

This Report

38

Tables Table 1: Number of Returns and Number and Percentage of

Returns With Dollar Amount of Section 127 Assistance

Employers Provided Employees, as Reported to IRS, 1992-1994

8

Table 2: Estimated Percentage and Dollar Amount of Section 127

Assistance and Number of Recipients, by Student Level,

Academic Year 1992-1993

14

Page 24 GAO/GGD-97-28 Employer-Provided Educational Assistance
Contents

Table 3: Major Similarities and Differences Between Section 127

and Other Educational Assistance-Related Tax Provisions

21

Table II.1: Percentage of Employer Returns Filed With IRS

Reporting Selected Data Characteristics, 1992-1994

29

Table II.2: Variables and Estimated Amount of Section 127

Assistance and Relevant Number of Students, Academic Year

1992-1993

32

Table II.3: Confidence Intervals and Standard Errors for BLS

Estimates Used

35

Figures Figure 1: Process for Determining Deductibility of Educational

Expenses from Individual Taxes

4

Figure 2: Reported Dollar Amount of Section 127 Assistance

Provided, by Employer Size, 1992-1994

10

Figure 3: Number of Employees Reported to IRS as Eligible for

and Receiving Section 127 Assistance, 1992-1994

12

Figure 4: Number of Reported Section 127 Recipients by

Employer Size, 1992-1994

13

Figure 5: Estimated Number and Percentage of Section 127

Undergraduate Recipients by Employer Type, Academic Year

1992-1993

15

Figure 6: Estimated Number and Percentage of Section 127

Graduate Recipients by Employer Type, Academic Year

1992-1993

16

Figure 7: Estimated Section 127 Recipients by Identified

Occupation and Student Level, Academic Year 1992-1993

17

Figure III.1: Estimated Number of Section 127 Recipients by

Gender and Student Level, Academic Year 1992-1993

36

Abbreviations

BLS Bureau of Labor Statistics

IRC Internal Revenue Code

IRS Internal Revenue Service

NCES National Center for Education Statistics

NPSAS National Postsecondary Student Aid Study

Page 25 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix I 

Examples Illustrating IRS’ Determination of

Deductibility of Job-Related Educational

Expenses as Business-Related Expenses

The following three examples illustrate how the Internal Revenue Service

would determine whether job-related educational expenses would be

deductible as business-related expenses under section 162 of the Internal

Revenue Code (IRC). They are from the Department of the Treasury

regulations covering section 162.

Examples of

Determinations of Whether

Job-Related Expenses Are

Deductible Under IRC

Section 162

Example 1: A person holding a bachelor’s degree obtains temporary

employment as a university instructor and undertakes courses as a

candidate for a graduate degree. The person may become a faculty

member only if he or she obtains a graduate degree and may continue to

hold a position as instructor only so long as he or she shows satisfactory

progress toward obtaining this graduate degree. Determination: The

graduate courses taken by the person constitute education required to

meet the minimum educational requirements for qualifying in his trade or

business, and the expenses for these courses are therefore not deductible.

Example 2: An employee individual practicing a profession other than

law, for example engineering, is required by his employer to obtain a

bachelor of laws degree. So the employee attends law school at night and

receives the degree. Determination: Though he intends to continue

practicing his nonlegal profession as an employee, the expenditures made

by him in attending law school are nondeductible because this course of

study qualifies him for a new trade or business.

Example 3: A general medicine practitioner takes a 2-week course

reviewing new development in several specialized fields of medicine.

Determination: His expenses for the course are deductible because the

course maintains or improves skills required by him in his trade or

business and does not qualify him for a new trade or business.

Page 26 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

Three Primary

Sources Used: IRS,

NPSAS, and BLS

To achieve our objective to report information on the characteristics of

the employers providing educational assistance and the employees

receiving it under of section 127 of the Internal Revenue Code, we used

available data from three primary sources. We relied mainly on data from

IRS’s Form 5500 and its Schedule F to develop information about

employers providing educational assistance. To develop information about

employees, we relied primarily on NPSAS data. We supplemented employee

information by using BLS reports on employee benefits. Details about each

data source and dataset follow below.

We did not verify the validity of the data collected by IRS or the other

agency study sponsors. However, if the reporting rate for a specific

variable was less than 50 percent, we did not consider the data to be

reliable and therefore did not include them in our analysis. Reporting rates

for IRS and confidence intervals for NPSAS variables presented in this report

are provided in tables II.1 to II.2.

IRS Data Employers providing educational assistance under section 127 of the

Internal Revenue Code are required to file Form 5500-C/R and its Schedule

F (Form 5500). IRS provided GAO with data for 1992, 1993, and 1994 on

employer-provided educational assistance that was extracted from these

forms. The database included employer returns on employer

characteristics, including the amount of assistance spent on educational

assistance. These returns also provided data on employees, specifically the

total number of employees and those employees eligible for and receiving

educational assistance from the employer.

Form 5500 provides employer-specific information, including

• the employer identification number;

• the business code for the principal business activity that best describes the

nature of the employer’s business;

• the entity code which identifies the employer as one of the following: a

single-employer plan, plan of controlled group of corporations or common

control employers, a multi-employer plan, multiple-employer collectively

bargained plan, or a multiple-employer plan;

• the company plan number; and

• the type of benefit plan, including fringe benefit plans, which requires

filing Schedule F (Form 5500).

Page 27 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

Schedule F provided us with employer and employee information,

including

• employer identification number,

• business plan number,

• whether the employer’s fringe benefit plan included an educational

assistance program as well as a cafeteria plan,

• total number of employees,

• total number of employees eligible to participate in the educational

assistance program,

• total number of employees participating in the educational assistance

program, and

• total cost of the fringe benefit plan for the plan year, including the costs

for section 127 assistance.

IRS does not define educational assistance in its instructions for

completing the forms. Rather, it relies on employers to determine what

educational assistance means based on the broad definition of educational

assistance programs in section 127.

Our Analysis of IRS Data We analyzed the most recently available IRS data—1992 through 1994.

Though Schedule F was developed in 1991, it was not included in the tax

packet sent to filers until the 1992 filing year. IRS officials told us they

provided us with all data it had received and processed for 1992 and 1993.

It also provided us with the 1994 data it had received and processed

through May 31, 1996, which were the most recently available data. IRS

officials stated the believed this represented about 90 percent of the

returns it expected for that year. They considered this was sufficient to

include in our analysis and we concurred.

We did not verify IRS’s methodology in extracting data from returns.

However, we did review the database to ensure that duplicates and

non-relevant data were eliminated. Specifically, we developed computer

programs to eliminate returns that were not exclusively for educational

assistance and that were misreported duplications.

In addition, we found that the data reported to IRS and provided to us were

incomplete. For example, 65 percent of the returns showing educational

assistance provided in 1992 reported the total dollar amount of the

Page 28 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

assistance. The reporting rates for the IRS data characteristics cited in this

report, and their respective tables and figures, are shown in Table II.1.

Table II.1: Percentage of Employer Returns Filed With IRS Reporting Selected Data Characteristics, 1992-1994

1992 returns 1993 returns 1994 returns

Reported characteristic number percent number percent number percent

Figure 2: Reported dollar amount by employer size

Amount of assistance provided—small employers 189 54% 231 64% 272 72%

Amount of assistance provided—medium employers 268 63 279 71 313 81

Amount of assistance provided—large employers 1,828 71 1,954 78 1,994 83

Figure 3: Number of employees eligible for and receiving assistance

Number of employees eligible for assistance 3,317 93% 3,241 97% 3,159 98%

Number of employees receiving assistance 3,125 88 3,083 92 3,002 93

Figure 4: Number of recipients by employer size

Number of employees receiving assistance:

small employers 277 79% 298 82% 309 81%

Number of employees receiving assistance:

medium employers 399 94 367 94 367 95

Number of employees receiving assistance:

large employers 2,443 96 2,406 96 2,316 96

Note 1: References to figures refer to corresponding figures in the letter report.

Note 2: The number of employer returns submitted to IRS was 3,556 for 1992, 3,336 for 1993, and

3,234 for 1994.

Source: GAO analysis of IRS Form 5500 and related Schedule F data.

NPSAS Data We used NPSAS data to develop information about employees receiving

section 127 assistance. NPSAS is a comprehensive study that examines how

students and their families pay for postsecondary education and provides

other characteristics of the students. It includes nationally representative

samples of undergraduate, graduate, and first-professional students,21

students attending less than 2-year, 2-year, 4-year, and doctoral-granting

institutions, as well as students who receive financial aid and those who

do not. It also includes data taken from a sample of students’ parents and

information from educational institutions.

NPSAS was conducted for the Department of Education’s National Center

for Education Statistics for academic year 1992 to 1993. The NPSAS survey

21First professional refers to students who are in law school, medical school, or other first professional

schools following graduation with a bachelor’s degree.

Page 29 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

design was both large and complex, according to the NPSAS methodology

report.22 Data on nearly 2,000 data elements were collected from a diverse

set of respondents. Over 1,000 postsecondary institutions, 60,000 students,

and 11,000 parents participated in the study. The target population was all

students enrolled in postsecondary institutions in the United States, the

District of Columbia, and Puerto Rico during the financial aid award year

1992-93 (terms beginning July 1, 1992, through June 30, 1993). NPSAS:93

was a stratified multistage probability sample of students enrolled in

postsecondary institutions representing an estimated 18.5 million

undergraduates and 2.7 million graduate and first-professional students.

Overview of NPSAS Design

and Sampling

According to the NPSAS methodology report, the study design used a

two-phase sampling selection process for institutions. First, geographic

areas based on three-digit postal ZIP codes were selected as primary

sampling units. Second, institutions were selected using two survey

frames: The institution sampling frame was built from the 1990-91

Integrated Postsecondary Education Data System Institutional

Characteristics file (IPEDS-IC), which was supplemented with the Office

of Postsecondary Education Data System (OPE-IDS) file of institutions

from the Stafford and Pell student aid programs as of April 15, 1992.

Moreover, 22 strata were defined for the selection of institutions and two

sampling strata were developed through the classification of institutions

based on two criteria: (1) type of ownership or control, e.g., public,

private/nonprofit, or private/for-profit institutions and (2) the length of

time required to complete the highest degree offered, e.g., 4-year, 2-year,

or less than 2-year.

A sampling of 1,386 institutions was allocated to the 22 strata and 2

sampling frames. Computer-assisted data entry software was used to

abstract comprehensive information about a student’s involvement with

the institution. A total of 1,098 of the eligible institutions provided lists that

could be used for student sample selection. Of these, student records were

successfully extracted from 1,079. A total of 82,016 students were selected

from enrollment files supplied by the eligible and participating institutions.

They were administered a computer-assisted telephone interview. Of the

79,269 students ultimately eligible for the base survey, 66,096

22NCES, Methodology Report for the National Postsecondary Student Aid Study, 1992-93, Nov. 1995.

Page 30 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

(83.4 percent, unweighted) were classified as respondents.23 In addition,

parents of a subsample of 18,129 students were interviewed by telephone.

The NPSAS estimates are subject to sampling and nonsampling errors.

Sample errors exist in all sample-based datasets. Estimates based on a

sample may differ from those based on a different sample of the same

underlying population. Nonsampling errors are due to a number of

sources, including but not limited to, nonresponse, inaccurate coding,

misspecification of composite variables, and inaccurate imputations. The

Data Analysis System procedures that compute the estimates required 30

or more unweighted cases. Some estimates were not calculated because

fewer than 30 cases were in the NPSAS analysis file.

According to the NPSAS methodology report, the 1992-1993 data is not

comparable with prior NPSAS estimates. Two design changes account for

this: (1) different student enrollment period covered by the 1987, 1990 and

1993 studies and (2) inclusion of a small sample of students from Puerto

Rico in 1990 and 1993.

Our Analysis of NPSAS

Data

In using NPSAS data, we identified issues that would affect our analysis and

reporting. NPSAS data are not comparable to IRS or BLS data primarily

because of differences in the populations surveyed. Specifically, NPSAS

estimates were based on responses to questions to eligible educational

institutions based on a set of seven criteria. These criteria included that

the institution offer more than just correspondence courses and offer at

least one program requiring a minimum of 3 months or 300 clock hours of

instruction. This precluded workshops, weekend seminars, and week-long

computer courses, for example, that would be included in educational

assistance reported to IRS. Further, low response rates and lack of

estimates for certain variables also affected our ability to analyze and

present employee data. For example, response rates were too low to

estimate the number of undergraduates by all occupations identified by

NPSAS, as figure 8—Estimated Section 127 Recipients by Occupation and

Student Level, Academic Year 1992-1993—indicates.

The following table provides the data variables and the estimated amount

of section 127 assistance and the relevant estimated number of students

23Unweighted response rates were computed as the ratios of the number of sampled units that

completed the survey over the number of eligible units in the sample, according to the NPSAS

methodology report. Ineligible institutions were deleted from the sample before data collection and

were not included in the denominator when calculating response rates.

Page 31 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

we analyzed and presented in this report. The confidence intervals and

sampling errors for the individual variables were not available.

Table II.2: Variables and Estimated

Amount of Section 127 Assistance and

Relevant Number of Students,

Academic Year 1992-1993

Variable

Estimated number

(undergraduate)

Estimated

number (graduate)

Amount of sec. 127 assistance $345,908,384 $251,363,822

Number of recipients of sec. 127 assistance 336,880 119,210

Type of employer

Private, for-profit employer 201,640 58,140

Private, non-profit employer 43,460 18,590

Federal government employer 22,330 9,520

State government employer 22,530 16,720

Local government employer 38,960 13,620

Occupation

Clerical—secretarial 26,310 •

Clerical-financial 29,480 •

Clerical—other 30,610 8,400

Technical—noncomputer 24,760 •

Technical—computer 13,930 •

Professional—medical 20,110 •

Professional—engineer • 18,130

Professional—other 14,080 15,160

School teacher • 14,220

Manager/administrator—other 36,680 16,270

Occupation totals 195,960 72,180

Note: • indicates the survey response was too low to provide an estimate.

Source: GAO analysis of NPSAS:93 data.

BLS Reports We used BLS information to supplement data about employees’ receiving

section 127 assistance. BLS conducts surveys to obtain data on the

incidence and provision of employee benefits, including educational

assistance. The surveys collect data to determine the number of

employees eligible for this assistance, not the use of it. We used

information contained in the two most recent reports: Employee Benefits

in Medium and Large Private Establishments, 1994 and Employee Benefits

in Small Private Establishments, 1994.

Page 32 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

Overview of BLS Survey

Design and Sampling

The underlying surveys for the two reports we used covered all industries

in the United States and the District of Columbia, except for farms and

private households, as well as full- and part-time employees. The sample

design for the surveys was a two-stage probability sample of detailed

occupations. The first stage of sample selection was a probability sample

of establishments. The second stage was a probability sample of

occupations within those establishments.

To ensure that the sample was representative, a sample of newly opened

establishments were added to the sample of existing ones. The sample of

establishments was selected by first stratifying the sampling frame by

industry group, and then by region and establishment employment. The

industry groups usually consist of 3-digit Standard Industrial Classification

groups, as defined by the Office of Management and Budget. The number

of sample establishments allocated to each stratum reflected the ratio of

employment in the stratum to employment in all sampling frame

establishments. Thus, a stratum that contained 1 percent of the total

employment within the scope of the survey received approximately

1 percent of the total sample establishments. Each sampled establishment

within an industry group had a probability of selection proportional to its

employment.

The survey design used an estimator that assigned the inverse of each

sample unit’s probability of selection as a weight to the unit’s data at each

of the two stages of sample selection. Weight-adjustment factors were

applied to the establishment data. For the survey of medium and large

private establishments, the first factor was introduced to account for

establishment nonresponse, and a second poststratification factor was

introduced to adjust the estimated employment totals to actual counts of

the employment by industry for the survey reference date. For the survey

of small private establishments, a third factor for occupational

nonresponse was applied.

The statistics in these reports are estimates derived from a sample of

usable occupation quotes selected from the responding establishments.

They are not tabulations based on data from all employees in small and

medium and large establishments within the scope of the survey.24

Consequently, the data were subject to sampling and nonsampling errors.

24Small establishments employ fewer than 100 employees, and medium and large establishments

employ 100 or more employees.

Page 33 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

Data for the employee benefits surveys in small private establishments

were collected from November 1993 to October 1994 and in medium and

large private establishments from November 1992 to October 1993. The

2,135 responding small establishments yielded 6,489 occupational quotes

for which data were collected. This resulted in an estimated 35,909,558

full-time workers and 12,716,611 part-time workers in small establishments

who were within the scope of the survey. The 2,325 responding medium

and large establishments yielded 13,012 occupational quotes for which

data were collected. This resulted in an estimated 28,728,207 full-time

workers and 5,564,940 part-time workers in medium and large

establishments who were within the scope of the survey. BLS used four

procedures to adjust for missing data from refusals from small

establishments and three procedures to adjust for missing data from

refusals from medium and large establishments.

Our Use of BLS Data We used BLS data to report on the estimated number of all full-time and

part-time employees and those eligible for educational assistance. We

developed information on the eligibility of full-time employees in small

private and medium and large private establishments for job-related and

nonjob-related assistance using table 4 from the 1994 report on small

establishments and table 4 from the 1993 report on medium and large

establishments. We developed information about the eligibility of part-time

employees in small and medium and large establishments for job-related

and nonjob-related assistance using tables 80 and A.2 from the 1994 report

on small establishments and tables 207 and A.2 from the 1993 report on

medium and large establishments. Table II.3 shows the confidence

intervals and sampling errors at the 95-percent level for the BLS estimates

we used for full-time and part-time employees.

Page 34 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix II 

Technical Appendix: Methodology for

Analyzing IRS and NPSAS Data

Table II.3: Confidence Intervals and Standard Errors for BLS Estimates Used

Small establishments Medium/Large establishments

Percentage

Confidence

interval

Standard

error Percentage

Confidence

interval

Standard

error

Full-time employees eligible

for job-related education 37% 31.8 - 42.2% 2.6 72% 68.6 - 75.4% 1.7

Full-time employees eligible

for nonjob-related education 6 3.2 - 8.8% 1.4 22 18.5 - 25.5% 1.75

Part-time employees

eligible for job-related

education 15 10.6 - 19.4% 2.2 35 31.1 - 38.9% 1.95

Part-time employees

eligible for nonjob-related

education 3 1.4 - 4.6% .8 8 5.7 - 10.3% 1.15

Source: BLS reports.

Page 35 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix III 

Additional Information About Employees

Analysis of NPSAS

and BLS Data

Revealed Additional

Information

Our analysis of NPSAS data showed that just over half of undergraduates

and graduates that received section 127 assistance were female. Of the

336,880 undergraduates, 56 percent were female. Of the 119,210 graduates,

52 percent were female. Figure III.1 shows the estimated number of

section 127 recipients by gender and student level.

Figure III.1: Estimated Number of

Section 127 Recipients by Gender and

Student Level, Academic Year

1992-1993

0

50,000

100,000

150,000

200,000 190,030

61,750

146,850

57,460

Undergraduates Graduates

Student level n = 456,090

Number of students

Female

Male

Source: GAO analysis of NPSAS:93 data.

Medium and Large

Employers Had More Than

Twice the Rate of

Educational Assistance

Eligibility as Small

Employers

According to BLS data, medium and large employers (100 or more

employees) were more likely than small employers to consider employees

eligible for educational assistance.25 Of the estimated 28.7 million full-time

employees of medium and large employers, BLS estimated that 72 percent

(20.8 million) were eligible for job-related educational assistance and that

of the 35.9 million full-time employees at small employers, it estimated 37

percent (13.4 million) were eligible. The percentage difference is more

pronounced when looking at eligibility for nonjob-related educational

25BLS recognizes that eligibility criteria for educational assistance, such as seniority, vary by employer,

and it therefore relies on employers determining employee eligibility.

Page 36 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix III 

Additional Information About Employees

assistance: an estimated 22 percent (6.3 million) of full-time employees at

medium and large employers were eligible for nonjob-related educational

assistance compared to 6 percent (2 million) at small employers were

eligible. (Information on part-time employees is in appendix III.)

Similarly, the percentage of part-time employees of medium and large

employers eligible for educational assistance was more than twice that of

those of small employers. BLS estimated that 35 percent (1.9 million) of the

estimated 5.5 million part-time employees of medium and large employers

were eligible for job-related education and that 15 percent (1.9 million) of

about 12.7 million part-time employees of small employers were eligible.

BLS also estimated that about 8 percent (about 440,000) part-time

employees of medium and large employers were eligible for nonjob-related

educational assistance compared to about 3 percent (almost

400,000) part-time employees of small employers were eligible.

Page 37 GAO/GGD-97-28 Employer-Provided Educational Assistance
Appendix IV 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Harriet Ganson, Assistant Director, Tax Policy and Administration Issues

Keith Steck, Evaluator-in-Charge

Patricia McGuire, Technical Assistant

Pamela Pavord, Evaluator

Katherine Wheeler, Publishing Advisor

Jena Sinkfield, Administrative Operations Assistant

Hazel Bailey, Writer-Editor

Office of General

Counsel, Washington,

D.C.

Shirley Jones, Attorney

(268729) Page 38 GAO/GGD-97-28 Employer-Provided Educational Assistance
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