1996 Legislation Concerning Employer-Provided Educational Assistance
PURPOSE: To provide information on a change in federal tax law concerning employer-provided educational assistance programs. Due to recent federal legislation, employees who received employer-provided educational assistance for the 1995 taxable year may be entitled to refunds of Connecticut income tax.
NEW TAX LAW: Under the Small Business Job Protection Act of 1996, Public Law Number 104-188, § 1202, 110 Stat. 1755, 1772, Congress has amended the Internal Revenue Code to allow an annual exclusion from income of up to $5,250 for employer-provided educational assistance. This amendment is retroactive to taxable years beginning on or after January 1, 1995. This exclusion does not apply to graduate-level courses that begin after June 30, 1996. Please contact the Internal Revenue Service for more detailed information.
WHO IS AFFECTED BY THIS NEW LEGISLATION? This new legislation affects both employees who received employer-provided educational assistance and employers who provided the benefits. Only those individuals whose 1995 income included employer-provided educational assistance and who paid Connecticut income tax on those benefits are entitled to a refund. Employers who provided the assistance are required to correct wage amounts reported on previously filed 1995 Form CT-W3, Connecticut Annual Reconciliation of Withholding, and Form CT-941, Connecticut Quarterly Reconciliation of Withholding.
WHAT IS THE RESPONSIBILITY OF THE EMPLOYEE? For federal income tax purposes, an employee who received employer-provided educational assistance and paid federal income tax on those benefits should obtain from his or her employer a federal Form W-2c, Statement of Corrected Income and Tax Amounts, displaying the corrected amount of wages. The employee should file an amended federal income tax return using the corrected amounts on the federal Form W-2c. Contact the IRS for information about special procedures to expedite the processing of your amended federal income tax return.
HOW DO I RECEIVE A REFUND? To receive a refund of Connecticut income taxes, an employee must file a Form CT-1040X, Amended Connecticut Income Tax Return. On the reverse side of Form CT-1040X write "IRC 127" in Part 1 - Explanation of Changes to Income Additions and Subtractions and attach the "state" copy of federal Form W-2c. Anyone who files an amended federal income tax return is required to file Form CT-1040X within 90 days if the change affects his or her Connecticut income tax liability. Failure to report any such change within the 90-day period will result in a penalty of $50. Claims for refunds not filed within the 90-day period will be denied if the amended Connecticut income tax return is not filed within three years of the original due date of the return or, if an extension of time to file was granted by the Department, within three years of the extended due date.
WHAT IS THE RESPONSIBILITY OF THE EMPLOYER? An employer which provided educational assistance to its employees and reported such amounts as wages, must make adjustments to its Connecticut employer withholding tax forms. Adjustments to employee wage amounts on previously filed Form(s) CT-941 must be made by filing Form CT-941X, Connecticut Quarterly Amended Reconciliation of Withholding for each quarter. In addition, adjustments to 1995 wage amounts must be made by filing an amended Form CT-W3, Connecticut Annual Reconciliation of Withholding. Attach only the "state" copy of federal Forms W-2c filed with the IRS. Employers may amend Form CT-W3 by writing "AMENDED" at the top of the form and completing the form using the corrected total annual wage amount. Employers must write "IRC 127" on both Forms CT-941X and the amended Form CT-W3.
MUST AMENDED FORMS CT-W3 OR CT-W-2C BE FILED ON MAGNETIC MEDIA? No. If you wish to file data on magnetic media, you must make a complete resubmission of the data including the amended Form CT-W3, original federal Forms W-2 that required no adjustments and new federal Form W-2c.
EFFECT OF THIS DOCUMENT: An Announcement (AN) is a document that alerts taxpayers to new developments (other than newly enacted or amended Connecticut or federal laws or newly released judicial decisions), including new administrative positions, policies or practices.
EFFECT ON OTHER DOCUMENTS: None.
FOR FURTHER INFORMATION: To order forms and publications or for further information, call the Department of Revenue Services at 860-297-5962 (Hartford area or out-of-state) or 1-800-382-9463 (in-state). Forms and publications may be ordered through voice-mail 24 hours a day by choosing Option 3 on your touch tone telephone.
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