Employer tuition reimbursement programs often make it possible for employees to go back to school or receive training they otherwise wouldn't be able to afford. Generally, this money is tax-free, which means it is not treated as additional income you must pay taxes on. However, if your employer provides more than $5,250 in tuition reimbursement in a tax year, you must pay taxes on the overage amount.
Up to $5,250 Tax-Free Employer Provided Assistance
The Internal Revenue Service allows you to exclude up to $5,250 in educational assistance benefits each year. This means the money is tax-free and you are not required to include it as income on your income tax return. The benefits must be used for tuition, school fees, books, equipment and supplies. Since your employer is reimbursing you for tuition, this qualifies as educational assistance.
Tuition Reimbursement Taxable on Benefits Over $5,250
If your employer provided more than $5,250 in tuition reimbursement during one year, you must pay taxes on the amount over $5,250. Your employer will list this amount in Box 1 of your W-2, entitled "Wages, Tips and Other Compensation." However, if the amount over $5,250 represents working condition fringe benefits, you do not. A working condition fringe benefit is something that you could've deducted from your taxes as an employee business expense had you paid for it yourself.
Claiming Double Benefits Prohibited
IRS education reimbursement rules prohibit taxpayers from claiming more than one educational assistance credit during the same year. For example, you can deduct up to $2,000 on your income tax return for qualified education expenses, such as tuition, under the Lifetime Learning Credit program. However, if you also received tuition assistance from your employer during that same year, you cannot claim that as well. This is because doing so would create a double benefit, which is prohibited by the IRS. Claim the one that gives you the largest tax advantage.
Employer Conditions on Reimbursement
You are not required to use tuition reimbursement for work-related courses or studies that lead to a degree. Any training or instruction that improves or develops your skills is permissible. However, your employer may require you to achieve a minimum grade, complete a program, remain employed at the job for a certain amount of time after your studies are over, or submit receipts as a condition of receiving tuition reimbursement.
- IRS: Publication 970, Chapter 11 - Employer Provided Educational Assistance
- IRS: Form W-2, Wage and Tax Statement
- FinAid: Employer Tuition Assistance
- 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.
- Communications Workers of America, Local 3207. "AT&T Non-Management Tuition Assistance Plan," Page 8. Accessed April 10, 2020.
Based on the West Coast, Mary Jane Freeman has been writing professionally since 1994, specializing in the topics of business and law. Freeman's work has appeared in a variety of publications, including LegalZoom, Essence, Reuters and Chicago Sun-Times. Freeman holds a Master of Science in public policy and management and Juris Doctor. Freeman is self-employed and works as a policy analyst and legal consultant.