Tuition Reimbursement Tax Information
Education generally increases your ability to perform at your job and possibly increases your understanding of complex matters, enhancing your attributes related to your employment. You may even have limitations on your upward mobility without improving your educational accomplishments. These accomplishments may come in the form of single classes, certifications and degree programs. Unfortunately, the cost of this education carries a high price tag, which is why some employers choose to offer educational assistance to employees.
Employer Assistance
Employers can provide educational assistance to employees through many different methods. Your company can reimburse you, pay your costs up front or even provide in-house education to you at no expense. Not all assistance is tax-free, so consult your employer to determine the tax consequences of the benefits you receive. Common programs include reimbursement after completion of your course, varying levels of reimbursement for different final grades and employer payment up front before beginning class.
Considerations
Your employer can provide you with educational benefits up to $5,250 tax-free. Any assistance beyond this amount becomes taxable and reportable on box 1 of your W 2. Qualified tax-free educational benefits include the cost of tuition, fees, supplies, equipment and books related to enrollment in your course. Courses do not have to relate to your employment, although they cannot involve hobbies, games or sports, unless the class reasonably relates to your employment or is part of an accredited degree program.
Tax-Free Limitations
An employer can provide educational assistance beyond the $5,250 tax-free limitation to the extent that the benefit is a working condition benefit. To qualify as a working condition benefit, the education must otherwise be deductible to you, the employee, had you paid the expenses. In addition, at a minimum the education must maintain your job skills, if not improve them, for your current position. You may also meet the working condition benefit if the education is required by law or your employer to maintain your current position.
Warnings
Although your education benefits may meet the requirements of a working condition benefit, you still may not be able to receive your educational benefit tax-free. Minimum educational requirements in your employer's industry or trade become a taxable benefit. Accounting firms comprising certified public accountants and attorney firms require licensure before employees can perform the primary services the business provides to its clients. Education used to satisfy licensure requirements no longer qualifies as a working condition benefit. Additionally, programs of study that qualify you for a new trade or business do not qualify as a working condition benefit either.
Expert Insight
Educational expenses you paid and deducted are no longer deductible if you receive any form of reimbursement for qualified expenses. Reimbursement comes in the form of grants, employer assistance and other forms of payment. Not only is the tuition no longer deductible, you cannot deduct any qualified expenses related to the tuition, for which you received reimbursement. Educational institutions such as colleges and universities, exclude the cost of qualified tuition reduction from your wages if you a current employee. For additional assistance with your specific circumstances, contact your local enrolled agent, a tax professional licensed by the Department of the Treasury in tax matters.
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