Posted on: October 3, 2022
Your employer’s education benefits are a great way to reduce the cost of saving for, paying off, or getting your education – but it’s good to know the overall impact on your financial picture.
Tax Implications for Tuition Reimbursement
Under federal tax law, you can receive up to $5,250 in tuition reimbursement each year from your employer without having to declare the tuition reimbursement on your federal income taxes – as long as your employer has a written policy that meets federal tax guidelines. (Your employer also benefits by being able to claim up to $5,250 per year, per employee as a tax deduction.)
That assistance can be used to cover tuition, fees, books, and certain supplies and equipment, but not housing, meals, transportation, tools, and other supplies, etc.
If you receive tuition assistance above the annual $5,250 cap, you may be able to claim the cost as a deductible business expense if it’s job related.
Impact of Tuition Reimbursement on Financial Aid
If the tuition reimbursement you receive from your employer isn’t enough to cover your education costs and you need to apply for financial aid, you may qualify for less in federal financial aid. That’s because you’ll need to include any employer reimbursement or assistance as part of your application’s financial statement, possibly reducing the amount you qualify for in financial aid.
Still, receiving money from your employer is usually a better alternative to taking out more in loans.
Considerations for Using Tuition Reimbursement Benefits
Here are some additional factors to keep in mind before deciding whether and how to use education benefits.
Your out-of-pocket expense.
Many education benefits will cover only the cost of tuition. Depending on the size of the campus, there may be other fees (operational, building, student fees, etc.) that you’ll need to pay out of pocket. Online institutions may have fewer operational fees.
Will you be required to pay tuition and wait to be reimbursed by your employer – or will your employer pay the institution directly? You’ll want to be sure all required fees can be covered before you sign up for the program.
Longevity with the company.
Your degree may take several years to complete, particularly while you’re working. How long do you intend to stay with the company – and how long are your required to stay after you complete your degree (if at all)? If you leave early, are you required to repay a portion of education costs? These are all important questions to consider.
Maximizing Your Education Benefits
In addition to tuition reimbursement and college savings programs, employer-assisted student loan repayment programs are also becoming popular. Each of them have important considerations – and you may benefit from using more than one of them at a time.
For more information about how education benefits programs can benefit you, learn more and gain tips from Michael Riordan, BenefitEd CEO, and Deniece Maston, HR knowledge advisor at the Society for Human Resources Management’s Knowledge Center, in this Sidekick article.
Learn how BenefitEd’s programs work to help employees like you juggle multiple financial priorities. For more information about specific education benefits available to you, contact your employer.