Easier access to lifelong learning is essential if technical professionals, including engineers and scientists, are to meet constantly changing performance requirements and their employers are to remain competitive in today’s increasingly technology-based global economy. For these reasons, IEEE-USA:

• advocates continuing education for all technical professionals.
• encourages U.S. IEEE members to assume full responsibility for developing their professional careers, and provides educational materials, meetings, conferences, technical publications, and self-study courses to help them meet this responsibility.
• encourages employers to support efforts by employees to maintain their professional and technical competence.

Because lifelong learning is so important, the federal government -- in partnerships with businesses, educational institutions, labor unions, professional societies, and trade associations -- has a critical role to play in the promotion and financing of needed investments in continuing education by individuals and their employers.

Five amendments to the Internal Revenue Code are needed to better enable high-tech professional and other workers to meet lifelong learning requirements for jobs in technology-based occupations. They include:

1. An increase in the income eligibility limits for the educational tuition and fee deduction to enable technical professionals to qualify for the deduction and a broadening of the definition of eligible educational institutions to include professional societies that provide continuing education.
2. An increase in the income eligibility limits for the lifetime learning credit.
3. An expansion of the income tax exclusion for employer-provided educational assistance.
4. The creation of a new tax credit for education and training expenses incurred by employers.
5. The creation of a new tax-favored savings account to help pay for job and career-related education expenses incurred by individual taxpayers.

This statement was developed by the IEEE-USA’s Career & Workforce Policy Committee and represents the considered judgment of a group of U.S. IEEE members with expertise in the subject field. IEEE-USA is an organizational unit of the IEEE, created in 1973 to advance the public good while promoting the careers and public policy interests of the more than 225,000 electrical, electronics, computer and software engineers who are U.S. members of the IEEE. The IEEE is the world’s largest technical professional society. For more information, go to http://www.ieeeusa.org.

Background

The Need for Additional Tax Incentives for Lifelong Learning

The U.S. Department of Labor reports that average job tenure for all workers is less than seven years. The typical product development team in the high technology sector stays together for 18 to 36 months. The useful life of most software application packages is three years. As a result, technical professionals must continually upgrade their knowledge and skills to remain employable. The alternative is technological obsolescence, job loss for younger workers and displacement or early retirement for older workers.

Employers and employees recognize the critical importance of continuing education or lifelong learning. Most large employers routinely provide or pay for instructional opportunities for their workers. Many mid-sized and smaller firms do not -- either because they can't afford to or because they fear losing trained employees to their competitors. Firms should be eligible for a tax credit for investments in human capital.

At the federal level, the Internal Revenue Code contains some financial incentives for employers and employees who invest in continuing education. These incentives include tax deductions, tax credits and exclusions from income for certain kinds of educational expenses.

The Educational Tuition and Fees Deduction

Within stringent income limits, individuals may deduct certain education expenses from taxable income. Beginning in 2004, the amount of qualified education expenses that taxpayers may take into account in determining allowable tuition and fees deductions increases from $3,000 to $4,000, if their modified adjusted gross income (MAGI) is not more than $65,000 ($130,000 for married taxpayers filing jointly). If the MAGI is more than $65,000 ($130,000 for joint filers), but not more than $80,000 ($160,000 for joint filers), the maximum tuition and fees deduction is $2,000. Tuition and fees cannot be deducted if the MAGI is more than $80,000 ($160,000 for joint filers).

For purposes of the tuition and fees deduction, qualified education expenses include tuition and related expenses required for enrollment or attendance at an eligible educational institution. An eligible educational institution is any college, university, vocational school, or postsecondary educational institution that is eligible to participate in student aid programs administered by the U.S. Department of Education. This definition includes virtually all accredited, public, nonprofit and proprietary postsecondary educational institutions.

The tuition and fees deduction could be enhanced and made more useful to technical professionals by:

• Adding professional societies and associations that offer continuing education courses to the list of eligible educational institutions.
• Making the cost of obtaining and maintaining a credential (certification, licensing, registration and related continuing education) required by states to practice certain professions, such as engineering, a qualified education expense.

Hope and Lifetime Learning Credits

Hope and Lifelong Learning Credits are available to taxpayers, subject to stringent income limitations that reduce their usefulness for high-tech professionals:

The Lifetime Learning Credit is 20 percent of qualified expenses, up to a maximum of $2,000 per tax return. To qualify, a taxpayer must have Adjusted Gross Income (AGI) under $103,000 if married and filing jointly. A phase-out (reduction of the credit) occurs for modified adjusted gross incomes ranging from $83,000 to $130,000. For single taxpayers, the income eligibility limit is currently $51,000. No credit is allowed for taxpayers who are married but filing separately. The Lifetime Learning Credit is available only for qualified education expenses paid to an eligible educational institution (generally a college or university).Continuing education costs for courses (including distance learning) taken under the auspices of a professional association do not qualify for the credit.

Hope credits (up to a maximum of $1,500 per eligible student) are not available beyond the first two years of post-secondary education.

Expansion of the Tax Exclusion for Employer-Provided Educational Assistance

Section 127 of the Internal Revenue Code allows taxpayers to exclude up to $5,250 a year in reimbursements or direct payments from their employers for non-job related educational expenses from their taxable income.

Unfortunately, the current exclusion is limited to educational expenses incurred at accredited educational institutions. It should be expanded to cover reimbursements or payments by employers for tutorials and short courses offered by public and private providers, including professional societies and trade associations, which will enable recipients to become or remain proficient in new and emerging technologies.

Tax Credits for Education Costs Incurred by Employers

Because the willingness and ability of employers to pay for continuing education varies so considerably, IEEE-USA recommends that the Internal Revenue Code be amended to provide tax credits to encourage more employers, of all sizes, to underwrite continuing education expenses for their professional, technical and support personnel. Employers that spend in excess of two percent of sales or other revenues for instructional purposes should be eligible for the proposed tax credits.

Tax Favored Individual Education Accounts

Continuing education is fast becoming a mandatory investment for individuals who wish to maintain their employability, or make job or career transitions in engineering, computer science, health care, and other technology-based occupations. To help individuals make such investments, IEEE-USA also recommends that the Internal Revenue Code be amended to include an IRA-like Individual Education Account (IEA). The purpose of such an account should be to enable eligible individuals to save up to 5 percent of their pretax income (up to $3,000 a year, indexed for inflation) in tax-favored savings accounts that can be used to help pay for certain lifelong learning expenses. Qualifying expenses should include:

• the cost of education required to maintain professional or technical proficiency in a current job, including the cost of preparing for certification, licensing or registration examinations, and costs for continuing education (Professional Development Hours) to maintain such certification, licensing or registration.
• the cost of specialized education required to transition from one job or career field to another the cost of the specialized instruction needed to develop or enhance critical competencies – including communications, managerial, and team-building skills required to function effectively or to assume additional responsibilities.
• the cost of tuition, books and other instructional materials or equipment; registration fees; career counseling; skills assessment; and travel between an eligible individual's home or work and the facility at which instruction is provided.

If contributions to IEAs are used to pay for qualifying education expenses, no federal income or employment taxes should be imposed on the amounts contributed or on interest earned on amounts held in such accounts.

Amounts contributed to IEAs that are spent for other purposes prior to age 59 1/2 should be subject to applicable income and employment taxes. After eligible individuals reach age 59 1/2, IEA account balances should be transferable to an Individual Retirement Account or other qualified retirement or health savings account without tax or penalty. Taxability thereafter should be governed by applicable withdrawal and distribution rules.