Employer Tuition Assistance
May 18, 2009
Working Condition Fringe Benefits
Payments above $5,250 may also be tax-free, if they represent a working condition fringe benefit within the sense of IRC Sections 162 and 212. This means that if you had paid for the expenses, you would have been able to deduct them as an employee business expense. To do so the expenses must have been paid to improve or maintain job-related skills or must have been required by the employer (or by law) for the employee to remain employed in that job or at the same rate of compensation for a genuine business purpose of the employer. However, expenses for education that is required for the employee to satisfy the minimum educational requirements for qualification in the employee’s job are not deductible and so do not qualify for tax-free treatment if paid by the employer. Likewise educational expenses to qualify the employee for a new trade or business (that is not of the same general type of work as the employee’s current job) are not deductible and do not qualify for tax-free treatment if paid by the employer.
These working condition fringe benefits are not subject to the highly compensated employee restrictions that apply to other employer tuition assistance programs.
Tuition Waivers and Reductions
Colleges and universities may offer employees tuition waivers or tuition reductions for undergraduate education under IRC Section 117(d), provided that the benefit does not discriminate in favor of highly compensated employees. (The tuition waivers associated with graduate teaching and research assistantships are also excluded from income.)
Employers may also award scholarships to dependents of employees so long as the amounts do not require past, present or future teaching, research or other services by the student to the employer as a condition for receipt of the award. (There is an exception if the teaching or research services are required of all degree candidates regardless of whether they are a recipient of a scholarship or fellowship.) Only amounts paid for tuition and fees are excludable from income; amounts paid for a living stipend must still be reported as income. The student must be enrolled in a degree-seeking program.
This article originally appeared on FinAid.org. That article includes additional detailed statistics concerning employer tuition assistance plans and related resources.
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