Federal Tax Rules on Tuition Reimbursement

An accountable reimbursement plan pays you based on your education expenses. To get reimbursement, you must report your tuition and other expenses to your boss within a reasonable time. She cuts you a check, but does not report any of the money on your W-2 unless you get more than your expenses. If expenses are more than reimbursement, you can write off the extra on Schedule A. If you don't get reimbursed because you didn't follow the plan requirements, the unreimbursed expenses are not deductible.

With a nonaccountable plan, you get a flat reimbursement amount, regardless of your actual expenses. Your employer rolls the reimbursement amount in with your wages or salary and reports it as taxable income in Box 1 of your W-2. This leaves you free to claim your education expenses as an itemized deduction, regardless of whether you were reimbursed for more, less or as much as you spent. If you take the standard deduction instead of itemizing, you're out of luck.

Your employer's plan is only accountable if it reimburses you for expenses you can claim on Schedule A. Tuition, fees, books and supplies all qualify. If you travel from work to school, the cost of driving, taking a bus or riding a train are all deductible. You can write off the home-to-school commute if your studies last less than a year, and write off your lodging and half your meals if you're away from home overnight. Reimbursement for non-qualifying expenses is always treated as income.

You can only deduct expenses that qualify you to keep a job you have. Classes aimed at launching a new career aren't deductible and any reimbursement you get is taxable income. If you decide to itemize unreimbursed expenses, you treat them as "2 percent expenses." To claim the deduction, you add up all such expenses -- fees from your investments fit in this category -- and subtract 2 percent of your adjusted gross income. Whatever's left is your deduction.