Tuition Reimbursement | How Does Tuition Reimbursement Work?

What is Tuition Reimbursement?

Some employers offer tuition reimbursement to help employees pay for further education. This concept is essentially an employer reimbursing all or some of the expenses their employees face when participating in approved educational programs, attending college, etc. Reimbursement usually pays for tuition fees, books, and sometimes also other associated costs.

This can seriously help in peaking skills and knowledge, as this is going to be beneficial for the employer, but at the same time for employees.

How Does Tuition Reimbursement Work?

Tuition Assistance at Work. As far as how it works, tuition assistance programs will be different from one employer to the next, but below are the common ways that they tend to work:

Eligibility: Employers set out certain qualifications for employees to participate in the tuition reimbursement program. This can encompass specifics such as years of tenure, work history, and possibly even being a full-time employee.
Approval process: Before enrolling in an educational program or course, employees are required to first obtain approval from their employer. Employers may have rules on which types of programs or education qualify for reimbursement from the employer.
Expenses and limits: If approved, employees must pay for their education up front. All of this amounts to tuition, textbooks, and other suitable fees. Employers typically limit reimbursement amounts to a certain maximum per year or course.
Successful completion: Employees must complete the approved educational program or course to qualify for reimbursement. Some employers will require certain grades or performance standards to be satisfied.
Reimbursement process: Employees are responsible for providing proof of payment and completion to their employer after the program is complete. These generally contain receipts, transcripts, and other important evidence. Employer reviews company policy; the documentation can then process the reimbursement, partially or fully!
Tax implications: Some of the reimbursements may be exempt from tax under one head, whereas others will be subject to income tax under another head. Consult with a tax professional or reference the specific nuances of your state’s tax laws.

To ensure that you get the benefits available to you, it is a good idea for employees to familiarize themselves with their employer-specific tuition reimbursement policies and procedures.

Is Tuition Reimbursement Taxable?

The marketability of tuition reimbursement is subject to employer-specific policies and the laws governing taxes. Certain concepts to bear in mind from an overall point of view include:

Employer policies:

Tuition reimbursement can be considered taxable or non-taxable by employers. With programming from other employers, some are structured to allow for tax-free reimbursement, while others make it taxable income. Refer to your employer’s rules or review with HR for how the reimbursement is handled.

Educational assistance programs:

The Internal Revenue Service (IRS) Section 127 of the Internal Revenue Code describes guidelines for tax-free educational assistance programs. If your employer has a qualified tuition reimbursement program (as the IRS defines it) and classes fit within those guidelines, they can be tax-free, but only up to a limit ($5,250 max as of 2021).

Graduate-level courses:

For coursework above the undergraduate level, tuition reimbursement is taxable, regardless of whether or not it meets the requirements for tax-free treatment, in addition to the above. In such cases, the reimbursement amount is often included as part of your taxable income.

Job-related education:

If the tuition reimbursement pays for education that is a requirement of your job, directly related to it, or required to maintain or improve your work skills. If so, the reimbursement might be considered a working condition fringe benefit and may qualify as non-taxable income.

You’ll want to talk with a tax professional or look at the latest tax laws and your employer for details on how this specific educational benefit is taxed. They can offer assistance that is relevant to your situation, as well as any tax laws within your jurisdiction.

Also, See: Reimbursements Expense