As a way to retain employees, many employers offer fringe benefits, including educational assistance in the form of tuition and educational expense reimbursements. If your employer pays your tuition, you cannot deduct the amount paid when preparing your income taxes.The amount that you are reimbursed does not count as taxable income if it meets the qualifications under IRS guidelines.
Exclusion of Benefits from Income
You can exclude up to $5,250 of employer-paid tuition assistance benefits from your income each year by following IRS guidelines on employer-assisted educational programs. Your employer should not include educational benefits up to that amount as reported income on your Form W-2, Tax and Wage Statement. You also do not have to include this information when you complete your tax return.
Educational Assistance Program
An employer-sponsored educational reimbursement program must be defined by a written plan. The education need not be work-related, as long as your employer has made the plan available to everyone. It must not be for "highly-compensated" executives or individuals only. The plan cannot offer alternative options for education.
What is Covered
Educational assistance involves more than just tuition reimbursement. It also covers the costs of books, equipment and supplies. The education you receive does not have to be related to your work or part of a degree program. The IRS recognizes "any form of instruction or training that improves or develops your capabilities." Expenses not covered include transportation, meals or lodging, tools or supplies kept after course completion, or courses involving sports, hobbies or games -- unless they are related to your business or part of a degree program.
Working Condition Fringe Benefits
Generally, amounts over the $5,250 paid by your employer must be included as part of your taxable income on Form W-2. However, if you qualified to deduct the amount over $5,250 on your taxes because it was a business expense, then it is considered a "working condition fringe benefit" and doesn't need to be reported as income. If the tuition is for coursework required to keep your job -- such as certification or license renewal -- it is not a taxable benefit.
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