- Filing TaxesA young woman holding a pen, doing her taxes image by Christopher Meder from Fotolia.com
Sometimes an employer reimburses an employee for part or all of the employee's job-related tuition expenses. Although tuition reimbursement is considered income in the eyes of the IRS, the Internal Revenue Code makes special exceptions so an employee is not taxed on that income. - A working condition fringe benefit is an employer-paid expense that an employee would normally deduct as a business expense. Education working condition fringe benefits, which fall under Internal Revenue Code 132(d), are tax-deductible. The only requirement to exclude tuition reimbursement under 132(d) is that the expense must be work-related. Work-related means any expense needed to maintain or advance a job (See Reference 1, Page 79-80).
- Qualified tuition reduction is a reduction in tuition for working at an educational institution. Qualified tuition reduction falls under Internal Revenue Code 117. To exclude the reduction from taxes, the reduction cannot be considered payment for services. Excluding the reduction also depends on if the reduction is for an undergraduate or graduate degree (See Reference 1, Pages 83-84). Graduate level tuition reductions are tax-free only if the taxpayer does teaching or research activities for the institution.
- Qualified educational assistance applies when an employer pays an employee's tuition. This tuition does not need to be job-related. Internal Revenue Code 127 covers qualified educational assistance. The employer must have a written plan for reimbursement and there must be no additional incentives in the plan for employees who use the plan. The plan may not discriminate between highly compensated employees and non-highly compensated employees (See Reference 1, Pages 82-83). Employees may deduct up to $5,250 per year (See Reference 2).
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