Employer Tuition Assistance

on May 11, 2017

Employer-Paid Tuition Assistance

Amount

$5,250

Eligible Expenses

Tuition, Fees, Course Materials

Eligible Students

No restrictions

Number of Years

Unlimited

Income Phase-outs

None

 

 

Up to $5,250 in employer-provided tuition assistance, also known as employer educational assistance or employer tuition reimbursement, can be excluded from an employee’s income each year.

 

The $5,250 limit is per taxpayer, not per employer. As such, it is a combined limit for all of the employee’s employers in a specific tax year.

 

Eligible expenses include tuition, fees and course materials (required textbooks, supplies and equipment). Eligible expenses do not include the cost of a computer or other tools or supplies (other than textbooks) that can be retained by the employee after completing the course of instruction. Eligible expenses do not include the cost of meals, lodging and transportation. Courses involving sports, games or hobbies are not eligible unless they are required as part of the degree program or they have a reasonable relationship to the employer’s business.

 

The exclusion from income is available only to employees. It is not available to the employee’s spouse or dependents.

 

Some employers will pay for the cost of tuition up front. Others will reimburse the employee after the employee completes the course. Some employers require the student to complete the course or to obtain a specific grade (e.g., a B or better is typical) as a condition of reimbursement.

 

Reimbursements in excess of $5,250 will be considered taxable income to the employee, unless the reimbursement represents a working condition fringe benefit.

 

There are no enrollment status restrictions, so students might be enrolled part-time, even less than half-time. Eligible students do not need to be seeking a degree, certificate or other recognized education credential. The courses do not need to be provided by an accredited college or a college that is eligible for Title IV federal student aid. Undergraduate and graduate classes are eligible. Students are eligible even if they have a felony drug conviction, unlike the American Opportunity Tax Credit.

 

There are no income phase-outs and the exclusion from income for employer-paid tuition assistance does not expire. The exclusion from income is available for an unlimited number of years.

 

Working Condition Fringe Benefit

 

Employer tuition assistance in excess of $5,250 can be excluded from income if it represents a working condition fringe benefit.

 

To be considered a working condition fringe benefit, the education must be related to the employee’s current job, such as maintaining or improving job-related skills or necessary to comply with legal or professional continuing education requirements. Education that qualifies the employee for a new trade or business is not eligible. The expense must be an ordinary and necessary business expense. The expense must be documented with receipts or invoices just like any other business expense.

 

Impact on Eligibility for Need-Based Financial Aid

 

Most colleges consider employer-paid tuition assistance to be estimated financial aid and will reduce the student’s eligibility for need-based financial aid dollar-for-dollar.  

 

Coordination Restrictions

 

There is no double dipping. The same qualified education expenses cannot be used to justify another education tax benefit, such as the American Opportunity Tax Credit.

 

Additional Information

 

A good source of additional information concerning employer-provided educational assistance is Chapter 11 of IRS Publication 970, Tax Benefits for Education. Information concerning the business deduction for work-related education can be found in Chapter 12 of IRS Publication 970 and information about tax benefits for work-related education can be found in Chapter 27 of IRS Publication 17, Your Federal Income Tax. See also “Working Condition Benefits” in Chapter 2 of IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits.

 

The statutory language appears in the Internal Revenue Code at 26 USC 127 and 26 USC 132(a)(3) and (d). The current regulations can be found at 26 CFR 1.127-1, 26 CFR 1.127-2 and 26 CFR 1.162-5.

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