Education is expensive, but many college and graduate students receive financial help to cover the cost of tuition. Companies sometimes offer tuition reimbursement as a job benefit. Tuition reimbursement covers the cost of education for workers, up to some limit that companies set in advance. Educational assistance you receive through work may be tax-free depending on how much assistance you receive and what it pays for.
Educational Assistance Limit
Work-provided educational assistance such as cash for tuition is excluded from income, but the exclusion is subject to an annual limit. The first $5,250 of benefits received for the year is not included in your income, but benefits beyond that amount are generally included in your income. For instance, if you receive $7,000 of tuition reimbursement during the year, $1,750 of the benefit would appear on your W-2 tax form as wages, and you'd owe income tax on that amount.
Educational assistance is only tax-free if it is used to pay for specific benefits. According to the Internal Revenue Service, cash your employer gives you for tuition, fees and similar expenses, books, supplies and equipment qualify for the income exclusion. On the other hand, payments made for meals, lodging, transportation and tools that you can keep after taking a course don't count as tax-free educational assistance.
Working Condition Educational Assistance
You can exclude educational assistance that exceeds the $5,250 annual limit if the education counts as a working condition benefit. A working condition benefit is one you receive that helps you do your job. In the case of education, benefits that pay for training required by your employer or by law to keep your present job or improve your job skills count as working condition benefits.
The income exclusion for educational assistance generally does not apply to courses involving sports, games or hobbies. You can only exclude tuition reimbursement for a class involving sports, games or hobbies if the class is related to the business of your employer or if it is required as part of a degree program.
- Internal Revenue Service: Tax Benefits for Education: Information Center
- Internal Revenue Service: Employer-Provided Educational Assistance
- Internal Revenue Service: Publication 15-B - Main Content
- Forbes: Tuition Reimbursement: A Benefit for Some Employees and Employers
- 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.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.