The 1997 Taxpayer Relief Act requires employers to report tuition reimbursements to the Internal Revenue Service. Most employers do report tuition reimbursement, which the IRS considers a fringe benefit. However, the IRS allows taxpayers to deduct a considerable amount and the value of the benefit may not appear on your W-2.
The specific reporting requirements for tuition reimbursements depends largely on the size of the reimbursement in question. Fortunately, the IRS provides very clear reporting requirements for employers and employees alike.
Exploring Tuition Reimbursement
Many employers offer educational benefits to employees, often in the form of tuition reimbursement or student loan assistance. Tuition reimbursement programs pay for current employees’ tuition costs if they enroll in a program while working, and sometimes cover dependents’ costs as well. Some tuition reimbursement programs even reimburse current employees retroactively for tuition expenses incurred before they began their current jobs.
Evaluating Other Deductions
The IRS limits the amount of tuition that employers can reimburse tax-free each year. For the 2018 tax year, the limit is $5,250. If your tuition reimbursement is $5,250 or less, your employer should not include it on your W2 and you do not have to pay taxes on it. If your employer reimburses more than the $5,250 limit, they should include the overage in your wages on your W-2 and you will pay taxes on it.
Tuition Reimbursement Programs
Both scenarios assume that your employer has a formal, written tuition reimbursement program that is exclusively for its employees. Other requirements are that the program cannot not favor highly compensated employees, and eligible employees must be notified of the program’s availability and its benefits. Reimbursement can cover tuition and books, but travel, transportation, meals and lodging are not covered. If your employer does not have a written tuition reimbursement plan that meets these criteria, they must report tuition reimbursements on your W2 regardless of the amount.
Possible Exceptions to Explore
The IRS allows you and your employer to deduct tuition reimbursement above the limit only if the training you receive through the program counts as a working condition fringe benefit – your job or your employer requires you to have the particular set of skills that you develop through the program you are currently enrolled in. In these cases, you and your employer should thoroughly document the program, tuition and reimbursement and report all reimbursement and costs to the IRS.
Ask Your Employer
Your employer should report all fringe benefits – including tuition reimbursement – to the IRS. Likewise, you should report reimbursement on your tax return and pay taxes on any amount over the deduction limit. If your tuition reimbursement does not appear on your W-2 as a form of compensation, talk to your employer about whether or not the company reported the benefit to the IRS.
- IRS: Publication 15-B (2018), Employer's Tax Guide to Fringe Benefits
- IRS: Tax Benefits for Education: Information Center
- US Tax Center: Employer Tuition Reimbursement
- benefits pro: What's required for employer-sponsored tuition assistance programs
- PayScale. "Master of Business Administration (MBA) Degree." Accessed April 10, 2020.
- Deloitte. "Graduate School Assistance Program." Accessed April 10, 2020.
- Bank of America. "Tuition Reimbursement - Frequently Asked Questions," Pages 1-3. Accessed April 10, 2020.
- Wells Fargo. "Our Benefits." Accessed April 10, 2020.
- Glassdoor. "Apple Tuition Assistance." Accessed April 10, 2020.
- Intel. "Workplace Benefits." Accessed April 10, 2020.
- Business Insider. "15 Companies That Will Help Pay Your College Tuition." Accessed April 10, 2020.
- UAW-Ford. "Education, Development and Training Program - Tuition Assistance Policies and Procedures." Accessed April 10, 2020.
- U.S News & World Report. "7 Companies That Offer Employees College Cash as a Benefit." Accessed April 10, 2020.
- Communications Workers of America, Local 3207. "AT&T Non-Management Tuition Assistance Plan," Page 8. Accessed April 10, 2020.
Calla Hummel is a doctoral student studying contraband in international political economy. She supplements her student stipend by writing about personal finance and working as a consultant, as well as hoping that her investments will pan out.