Tuition Reimbursement

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IRS Code §127 allows employers to provide certain educational assistance to their employees on a tax-free basis, meaning that amounts paid or incurred by an employer under a qualified educational assistance program are deductible by the employer and are excludable from the employees’ taxable income. Tuition assistance programs cannot be offered through a cafeteria plan.

To qualify under Code §127, an educational assistance program must:

  • provide benefits exclusively to employees of the employer;

  • provide only qualified educational assistance benefits;

  • be a separate written program established by an employer;

  • does not allow employees a choice between assistance and cash;

  • does not discriminate in favor of highly compensated employees;

  • does not provide more than 5% of benefits in a year to more-than-5% owners.

 

The maximum amount of educational assistance benefits that can be provided to an employee on a tax-free basis each year is $5,250. A qualified educational assistance program can provide assistance to employees for a broad range of educational expenses, including expenses for graduate-level courses and for courses that are not job-related. Consequently, employers establishing these programs have a wide range of plan design choices.

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