Taxability and Tuition Reimbursement

[mikey79]

What is the name of your state? DC

Hello, I'm hoping you can help me with my question. I just joined an employer who offers a great tuition reimbursement program. In their policies, they mention that any reimbursement over $5,250 in a calendar year is considered taxable. However, while reading over IRS publications, and specifically working fringe benefits, I found the following information:
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From IRS Website: "Assistance over $5,250. If you do not have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you can exclude the value of these benefits from wages if they are working condition benefits. Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense. See Working Condition Benefits, later.

Education. Certain job-related education you provide to an employee may qualify for exclusion as a working condition benefit. To qualify, the education must meet the same requirements that would apply for determining whether the employee could deduct the expenses had the employee paid the expenses. The education must meet at least one of the following tests.
The education is required by the employer or by law for the employee to keep his or her present salary, status, or job. The required education must serve a bona fide business purpose of the employer.

The education maintains or improves skills needed in the job.


However, even if the education meets one or both of the above tests, it is not qualifying education if it:
Is needed to meet the minimum educational requirements of the employee's present trade or business, or

Is part of a program of study that will qualify the employee for a new trade or business."

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Since my graduate degree program is in a field that improves on the skills I can use in my current role, would anything reimbursed over $5,250 in a calendar year therefore be considered nontaxable?

Thank you for any help you can lend!What is the name of your state?

[LdiJ]

Well...its more complicated than that. It very well may be non-taxable, but your employer apparently has a policy on the subject, and its not necessarily something that you need to battle out with your employer.

The rules you are looking at apply to Schedule A deductibility of education expenses.

There are two other options for educational deductions/credits that you may be eligible to use for any of the expense that exceeds $5250.00

There is the above the line Tuition and Fees deduction, and the Lifetime Learning Credit. You would use one or the other, not both.

[mikey79]

Thanks for the reply. My employer says that they withhold taxes for any amount in excess of $5,250. So what you're saying is I wont be able to reclaim the taxes withheld for a reimbursement amount in excess of $5,250, even if the courses are to maintain and/or improve skills needed in my current job?

[TinkerBelleLuvr]

That's not quite what she said.

There are three different ways that you can deduct educational expenses from your taxes. Each have different rules. If you can itemize, then the Schedule A would probably me most advantageous for you. But, there is the income adjustment method (front of a 1040) and the educational credit on the back side.

You would get "reimbursed" when you file your taxes.