Education can be expensive. Nightmares of sinking twenty, thirty, forty thousand in debt has prevented thousands of American citizens from pursuing the education necessary to equip them with the skills and the knowledge to pursue their career dreams. Even more intimidating, professionals in highly technical fields will need to occasionally attend more expensive classes to keep up with the changes in their industry. There has to be a way to earn a degree or attend the occasional college class without digging into your own savings account.
On April 6th, Starbucks announced that they were expanding their College Achievement Plan to reimburse 100% of the tuition for their employees to pursue an undergraduate degree. In the wake of this announcement, I couldn't help but wonder: what else is out there to help not only Americans who have never earned a bachelor degree, but also for those who have already earned their very expensive undergraduate diploma?
Now let's delve into the fun and complicated world of business educational assistance benefits set up the IRS.
Education Assistance Programs
Dozens of local, state, national, and international have formal education assistance programs. These programs have written guidelines that detail how employees became eligible, what IRS approved education expenses they will reimburse, and how much the program can give to assist each employee. The programs are also required by law to benefit all eligible employees without any bias towards the employees that make more money or are related in some way to a shareholder of the company.
The expenses that a business can help their employees cover include:
- tuition and fees for any type of educational program that they decide to cover (not including sports, games, or hobbies courses unless the program requires it)
- books
- supplies and equipment (not including supplies and equipment that you keep after the course)
Education Assistance Benefits
The benefits covered under this program fall under two categories: non-taxable and taxable. Businesses can provide up to $5,250 non-taxable education assistance every year. Due to the fact that it is non-taxable, the amount will not be reported on the end of the year W-2 form. If the educational assistance provided at your company is over $5,250, the amount over the maximum tax-free assistance allowed will be considered a part of the individual's wage, must be reported on box 1 of the employee's W-2, and will be taxed at the end of the year in most cases--unless it can be considered a work-related education fringe benefit (more on that in a second).
Work-Related Education Fringe Benefit
Educational fringe benefits are expenses that can be deducted when you file your tax return as business-related. These expenses can either be the taxable benefit provided by an educational assistance program or an educational expenses acquired from working at a company that does not have a formal program. These expenses must meet the requirements set by the IRS for an educational fringe benefit.
First, the program must either:
- Be required by your employer or the law to either keep your salary, status or job. The education must serve a real business purpose for the company.
- Or, the education will help you improve or maintain the skills needed to do your job.
Second, the program cannot:
- Be required to meet the minimum educational requirements of your current trade or business based on state or national laws and regulations, professional standards, or your employer.
- (If you were hired before your employer raised the minimum requirements, you can count the program as a fringe benefit.)
- (Teachers who meet the minimum requirements in one state, and then move can count the courses required in their new state as a fringe benefit.)
- Or, the education cannot give you the credentials or the skills to enter a new trade or business.
If you're educational expenses pass, the following expenses can be deducted: tuition, books, supplies, class fees, the cost of research, and some travel and transportation expenses.
Transportation expenses can be counted if you know you will be attending classes for one year or less. The moment you discover that the classes will take more than a year to complete, travel no longer becomes tax deductible at that point. Travel deductions include: transportation fares or gas, parking fees or tolls from driving a car.
Travel expenses allow you to deduct your meals (only 50%) and lodging if the travel is required by work related education. Travel expenses will only cover trips where you spend more than 50% of the time on the work related education. If you spend 60% of your time sightseeing, you would only be able to deduct 40% of the lodging and meal cost.
In order to claim the deductible, the individual must report an itemized list of educational expenses they want to claim on their tax return. You should:
- Include the amount you want to deduct on line 21 of Schedule A (Form 1040) or line 7 of Schedule A (Form 1040 NR)
- Complete Forms 2106 and 2106-EZ unless the reimbursements are included on your W-2 and you're not claiming travel, transportation and meal expenses as a deductible.
Education can allow individuals learn the skills and knowledge to progress in their chosen fields. Unfortunately many individuals cannot afford to continually invest money in their education. Businesses offer an alternate option to potentially afford an education either through non-taxed tuition reimbursement programs or education fringe benefits.