Employer Tuition Reimbursement
One of the hallmarks of a great employer is that they are willing to invest in the future of their employees. A number of fortune 500 companies (like Fed Ex which provides up the $3,000 per calendar year in tuition reimbursement) and some small and mid-size companies offer tuition reimbursement as a means to promote loyalty among their workers, boost morale and encourage employees to obtain higher education that can ultimately benefit the company by having a workforce with enhanced knowledge and skills.
Typically administered through the Human Resources or Benefits department, companies will stipulate how much they will reimburse employees per semester or per year for college tuition. Some companies require the employee to pay the cost of tuition up-front and then submit proof of a passing grade (most require a “C” or better for reimbursement) and proof of payment; others have relationships with colleges and universities (such as University of Phoenix) that permit a deferred payment structure. Some companies will not provide tuition reimbursement unless the course is job-related while others may require that the employee be enrolled in a degree-seeking course of study.
Another consideration is the cost of books, lab fees, registration fees, etc. Companies vary on whether or not this is included in tuition reimbursement programs. For IRS tax and education purposes, qualified tax-free educational benefits include the cost of tuition, fees, supplies, equipment, and books related to enrollment in your course.
In the past, tuition reimbursement was reported as taxable income to the employee. In order to qualify for tax and education assistance, the employee had to claim the tuition reimbursement deduction on his/her income tax which was subject to income limits. Congress changed that rule to benefit employers and employees so that currently, the tax-free status is good for up to $5,250 of annual employer-provided assistance benefits through the year 2010. Any tuition expenses over and above the amount reimbursed by the company would be eligible for a tax and education credit claim.
Many employees are supplementing the employer provided tuition reimbursements with the education tax credits available through the American Opportunity Tax Credit, Hope Scholarship Tax Credit, and Lifetime Learning Tax Credits. For example, if an employee’s annual college expenses were $6,000 and his employee provided $3,000 of tuition reimbursement, the employee could apply for a tax and education credit for the remaining $3,000.