Tuition reimbursement payback

[molly23]

I live in South Carolina and will be leaving my employer for another job soon. Some history on the company: when I started there in Feb. 2007 it was another company and over the course of the past 2 yrs it was bought by another and was a subsidiary of the large corporation with the dissolution of the my company and full adoption to a business unit of the large corporation completed Dec 2009. A letter came out in Dec 2009 stating a policy change on tuition reimbursement; however those who signed under the agreement when it was the other company are bound by that agreement. That agreement states employee leaving must repay all tuition within one year end of classes from paycheck and if not enough to cover, employee will pay on their last day. Like I said, I didn’t think I’d be quitting or I would have never used this “benefit.”

I started participation in tuition reimbursement Jan. 2009 and because I had no intention of leaving my employer, I continued using it until Dec 2009. As a grad student the company would pay up to 12K in tuition, but students would have to pay tax on anything over the government allowed 5k amount. Of course what can happen will, and as a contractor, in Jan 2010 my contract was cancelled by the client. I went through a couple months trying to obtain a suitable position in the company and even though I was given a position in the company, that I am not happy with, I have found a better offer elsewhere.

I have no issue in that I need to repay the company, even though they are trying to get 4k of it out of me because my departure is 2 weeks prior to the end date of 2 of the classes one year ago. I am letting them know they can keep my last paycheck and the money I would have gotten for vacation time which is about 4k, they will have to accept payment arrangements for the remainder or sue me because I am not taking out a loan. The big thing that I wonder is since they gave me the tuition and I had to pay income tax on it, if I pay it back can I claim it as a loss on my taxes or do I resign myself to the fact that I paid taxes on money that in essence, I didn’t really get since I am giving it back? Thanks so much!

 

[swalsh411]

The only remedy your employer has if you do not pay pack the full amount would be to sue you in civil court; same as any other debt. If they give them permission to take it out of your last check and your vacation pay, and you still owe, they will need to sue you. Are you worried they are going to break your kneecaps?

As far as taxes go, I think you can take as a deduction anything you have to pay back that you paid taxes on when you received the benefit. You cannot take it as a credit however. So this would be anything above the IRS limit that you repaid to your employer. You may want to call the IRS to make sure.

 

[molly23]

Thanks for the response. Heh, no I am not worried about them breaking my kneecaps. I do wonder if anyone ever took out a loan to pay them back out of fear though.

 

[tranquility]

The taxation issue is a good question. It's common enough so I would expect some guidance, but didn't find any. And, while I only spent a couple of minutes on it, I'm good at finding guidance.

Without knowing the answer and just for consideration of others for ideas, I'd place it as a negative under "other income" and call it something like "Employer reimbursement of tuition benefit." in the year you repayed the amount. Then, I'd attach a statement to the back of the return and explain "The amount under other income was a reimbursement to my employer as I was required to repay tuition benefits I received under a qualified employer plan. Under the Tax Benefits Rule I placed the amount of taxable income which was reported on previous year W-2s as income which was over $5,250 of the benefits received in those years and which I paid back this year."

I'd spend a few minutes making that more clear if I had the time. I don't see you getting your social security, medicare, and any other taxes back.

 

[swalsh411]

Now that I think about it a little more, I can't think of a reason why you wouldn't be able to take the lifetime learning credit for a portion of what you have to pay back as if you paid it out of pocket. (provided you would otherwise qualify) The remainder would be tranquility described. I still recommend at least talking to the IRS if not a tax professional.

 

[tranquility]

Now that I think about it a little more, I can't think of a reason why you wouldn't be able to take the lifetime learning credit for a portion of what you have to pay back as if you paid it out of pocket.

I mean, except for the specific requirement it is not compensated for as an employer's plan. This is one of the harder parts. I totally agree with swalsh411 in theory, but, find nothing which indicates such treatment in law.

Can you amend and get credits? Who knows? See a tax professional who will put you on extension and do research after the 15th.

 

[swalsh411]

If your employer paid for a class but at a later date you have to repay them, then the taxpayer effectively paid out of pocket. At least that's how I see it.

 

[tranquility]

Read the code on the credits. I always get cold prickly feelings when I do things the code seems to specifically tell me not to do.

 

[molly23]

Thanks for all of the information. I too tried to research the issue and find rather vague or no specific examples. One thing I am checking into now is the fact they paid the tuition ahead of time for me via a third-party billing plan and I have ran across some references that this is a different instance than if I paid the amount and then asked my employer for reimbursement. In my opinion, there has to be something more that has a negative impact for employers who do this, since they changed the policy on Jan 1. to only reimburse after the course is completed. I am trying to find laws/info on the third-party billing now.

Cheers!