Employer-provided Education Assistance Exclusion

Did you know that an employee may receive, on a tax-free basis, up to $5,250 each year from his or her employer for educational assistance under a “qualified educational assistance program?”

For this purpose, “education” means any form of instruction or training that improves or develops an individual's capabilities, whether or not job-related or part of a degree program. Also included are employer-provided education assistance for graduate-level courses, including those normally taken by an individual pursuing a program leading to a law, business, medical, or other advanced academic or professional degree.

The educational assistance must be provided under a separate written plan that is publicized to your employees and must meet a number of conditions, including nondiscrimination requirements, i.e., it cannot discriminate in favor of highly-compensated employees. In addition, not more than 5% of the amounts paid or incurred by the employer for educational assistance during the year may be provided for the class of individuals who (including their spouses or dependents) own 5% or more of the business.

No deduction or credit may be taken by the employee for any amount excluded from the employee's income as an education assistance benefit.

In addition to, or instead of applying, the $5,250 exclusion, an employer may satisfy an employee's educational expenses, on a nontaxable basis, if the educational assistance is job-related. To qualify as job-related, the educational assistance must:

• maintain or improve skills required for the employee's then-current job, or
• comply with certain express employer-imposed conditions for continued employment.

“Job-related” employer educational assistance is not subject to a dollar limit. Educational assistance meeting the above “job-related” rules is excludable from an employee's income as a working condition fringe benefit.

If you have any questions regarding employer-provided education assistance, please contact us.