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Tax Rules for Employer’s Tuition Assistance

by Ryan Guina

When you are considering a job offer, it’s always important to look at the “fringe benefits,” which are employee benefits that go above and beyond salary. Fringe benefits include health plans, life insurance, accident insurance, educational tuition assistance, travel compensation, company cars, and a variety of other benefits. Some fringe benefits can be fully or partially tax deductible if they meet specific conditions and IRS requirements. Let’s take a brief look at employer’s tuition assistance and how it might affect your taxes if your employer offers it.

Tax Rules for Employer’s Tuition Assistance

Employer Tuition Assistance

Employers are allowed to provide up to $5,250 in educational expenses as a tax-free fringe benefit to their employees. This includes undergraduate and graduate level courses. Anything above $5,250 is generally considered as taxable income. However, there are some exemptions. If you receive assistance over $5,250 it is excluded from your income if the education is a qualified, working-condition, fringe benefit.

Qualified Working-Condition Fringe Benefits: the IRS defines qualified working-condition fringe benefits as property or services given to an employee, that would otherwise be an allowable tax deduction for that employee – for ordinary necessary trade or business expenses or depreciation expense.

This means if an employee would be able to deduct the cost of the education as a business expense, a necessary trade expense or depreciation expense, then the amount of employer tuition assistance provided over $5,250 is excluded from your income.

How taxable tuition assistance is documented: If there is a taxable amount to your education tuition assistance, it will be included in your W-2 wages.

How to Make the Most of Employer Tuition Assistance

Each employer offering employer tuition assistance has its own set of regulations and criteria. Understanding the common elements involved in most tuition assistance programs will help you make the most of the assistance:

Tuition reimbursement – some employers do not pay your tuition expenses directly to the university, and will only reimburse you after you’ve made the payment. Sometimes the reimbursement is made quarterly or at the end of the semester after grades are received. This means if you intend to go to college and take advantage of the employer tuition assistance, you’ll want to make sure the cost of tuition is in your budget so you can continue taking classes even in the event the reimbursement is delayed. Sometimes students will pay with a credit card offering rewards programs, so they can gain the rewards, make small payments on the card, and then just pay it off fully when the employer reimburses the tuition expenses.

Minimum GPA requirements – most employers offering tuition assistance require that you maintain a minimum grade point average (GPA). There are some programs that pay 100% of tuition expenses for students receiving an A grade; and lower percentages of tuition for lower grades. Make sure you understand how your company offers tuition assistance.

Major or field of study requirements – most employers require that the courses you take are directly related to your current position, or a potential future position within the company.

Must remain with employer – many employers will also include a stipulation that you must work for the company for a certain period of time after you receive tuition assistance from them – and if you don’t, you may have to pay back their investment in your education.


Published or updated October 31, 2010.
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{ 6 comments… read them below or add one }

1 KiraBG

It would be very helpful to spell out what makes educational expenses a working condition fringe benefit:

1. Education is not a minimum requirement for keeping or getting you current job.
2. Education does not qualify you for a new trade or business (e.g. an Engineer getting an MBA qualifies the person for a ton of other jobs, hence usually it is not tax deductible, or the IRS will try to argue that).
3. Education should improve or maintain your current skill set and benefit your current job.

Also, deducting it as a business expense on your tax return might trigger an audit, make sure you keep your documentation straight, and you do qualify under the three conditions above.

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2 John Thomas

My employeer paid my tuition directly ($6060 per the 1098-T). All classes were considered job related for tax purposes. Should I just ignore the 1098-T I received when I file my taxes? I have other expenses – travel, parking, books, etc. can those be deducted?

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3 Ryan

John, I recommend speaking with a tax professional for your specific situation. Best of luck.

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4 KiraBG

Try reading the Publication 970 Tax Benefits for Education and Publication 15-B. It is a bit convoluted, if you do not understand it, or do not want to waste time, contact a tax professional. From what I read, yes they are deductible if you did not get reimbursed for them, transportation to school is also deductible. Of course, I am not a tax professional, so either read it yourself or contact one.

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5 Abdul Awan

I received tuition assistance benefit from my employer. In Spring I registered for two courses and the employer paid $6400 to my institution against my $8000 limit. I then dropped the courses and the institution refunded the employer back full amount. Later in Fall I again registered for two courses and the employer paid $6400. Later I got a latter from the employer that my Taxable tuition is $ 7550 ($12,800- $5250 IRS Deduction Limit. I asked them that even though received the full refund how come the total tuition amount is $12,800. They said that calculating the taxable tuition it does not matter if they got the refund . Is it true?

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6 Ryan Guina

Abdul, it sounds to me like it was a clerical error on their part. I would contact the HR department and ask them if they can issue you another form stating the value of the college courses you actually took, versus the initial form they sent. You could also consult with a tax professional to ask for advice regarding how to handle this. Best of luck!

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