Education Reimbursement

As part of an employee-benefits plan, you may decide to offer educational assistance. Whether you choose to pay in advance for an employee to take a course or reimburse after completion, the fact that you are willing to pay for employees' career-related coursework or completion of a college degree is a sign of your trust and commitment in them.

Generally, employers can exclude up to $5,250 a year in employer-paid educational assistance from income for each employee. You may wish to consider offering educational assistance as part of a cafeteria plan.

For young, single employees who may not use a dependent- or health-care reimbursement account, an educational assistance program administered as part of your cafeteria plan equalizes the benefits treatment among employees.

If the employee is able to deduct additional expenses from his or her own taxes as a business expense, you may be allowed to exclude a larger amount from income under IRS rules for working condition benefits. See IRS Pub. 15-B for more information.

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An educational assistance program offers tax breaks to both you and the employee. As a result of providing an educational assistance program, you do not owe payroll or unemployment taxes on the excluded income. Since the assistance is excluded from the employee's taxable income, he or she pays less in income, payroll, and unemployment taxes.

Previously, educational assistance programs covered coursework that was related to an employee's career or pursuit of an undergraduate degree. The income exclusion was originally set to expire at the end of 2001. As a result of the Economic Growth and Tax Relief Reconciliation Act of 2001, the exclusion was made permanent and expanded to cover graduation coursework.

(Note: The tax bill has a "sunset" provision, which means that all statutes are scheduled to expire after 2010 unless a new legislation is passed in the interim.)

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.