Employee Tuition Reimbursement & Taxes

An employer that offers tuition reimbursement allows its employees to further their educations while paying some or all of the employees' expenses. These programs allow the employees to extend their skills and increase their value, while providing the employers with highly skilled workers. The IRS has specific rules on how employers and employees report tuition reimbursement payments. 

How Tuition Reimbursement Works

Employees must submit an application for tuition reimbursement before enrolling. The application shows the employer the institution the employee wants to attend, the classes the employee wants to take and how those classes will impact the employee's duties. The employer will often require that the employee maintain a specific grade point average to qualify for reimbursement. The tuition reimbursement agreement will also specify the time period for the reimbursement and any conditions that would require the employee to repay the reimbursed amount, such as termination of employment.

Employer Tax Benefits

The tuition reimbursement program allows employers to improve the quality of their workforce while reducing their overall tax burden. The IRS allows employers to deduct funds spent on tuition reimbursement from their taxable income. Employers can also exclude their tuition program reimbursements from an employee's wages if the employee enrolled in either undergraduate or graduate classes under the Qualifying Educational Assistance Program Exclusion. When companies understand how to apply tuition reimbursement programs effectively, they can use favorable tax policies to invest in their employees without reducing net profits.


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