What kind of educational assistance may an employer offer employees?
Author: Alice Gilman
An employer may offer employees two types of tax-free educational assistance - job-related educational assistance and nonjob-related educational assistance under +IRC § 127. On an annual basis, an employer that offers nonjob-related educational assistance may subsidize up to $5,250 of an employee's substantiated educational expenses. Overall, an employer may pay or reimburse an employee for the substantiated cost of books, fees, supplies and tuition. Qualified expenses do not include the cost of tools and supplies an employee may keep at the end of the course; they also do not include the cost of meals, lodging and transportation.
Nonjob-related educational expenses under +IRC § 127 include expenses an employee incurs for pursing any undergraduate or graduate degree. However, an employer may not offer nonjob-related educational assistance to an employee who wants to purse education that is considered a sport, game or hobby, unless the course has a reasonable relationship to the employer's business (e.g., the employer runs a gym or physical therapy business) or the course is required as part of a degree program.
Certain employer scholarships may be provided to employees or their dependents on a tax-free basis. An employer that is an educational institution may offer employees or their dependents a reduction in tuition.