Tax
& Business Alert – December 2023
483
words
Abstract: One popular fringe benefit that an
employer can offer is an education assistance program that allows employees to
continue learning, and perhaps earn degrees, with financial help from the
employer. A business can attract, retain and motivate
employees by providing these benefits so that team members can improve their
skills and gain additional knowledge. An employee can receive, on a tax-free
basis, up to $5,250 each year from his or her employer under a “qualified
educational assistance program.”
One
popular fringe benefit that an employer can offer is an education assistance
program that allows employees to continue learning, and perhaps earn a degree,
with financial help from the employer. Your business can attract, retain and motivate employees by providing education
benefits that enable team members to improve their skills and gain additional
knowledge. An employee can receive, on a tax-free basis, up to $5,250 each year
under a “qualified educational assistance program.”
For
this purpose, “education” means any form of instruction or training that
improves or develops an individual’s capabilities. It doesn’t matter if it’s
job-related or part of a degree program. This includes employer-provided
education assistance for graduate-level courses, as well as courses normally
taken by individuals pursuing programs leading to a business, medical, law, or
other advanced academic or professional degree.
More
requirements
The
educational assistance must be provided under a separate written plan that’s publicized
to your employees and meets specific conditions. A plan can’t discriminate in
favor of highly compensated employees.
In
addition, not more than 5% of the amounts paid or incurred by the employer for
educational assistance during the year may be provided for individuals
(including their spouses or dependents) who own 5% or more of the business.
No
deduction or credit can be claimed by an employee for any amount excluded from
the employee’s income as an education assistance benefit.
Job-related
education
If
you pay more than $5,250 for educational benefits for an employee during the
year, that amount must be included in the employee’s wages and he or she must
generally pay tax on the amount over $5,250. However, in addition to, or
instead of applying, the $5,250 exclusion, an employer can satisfy an
employee’s educational expenses on a nontaxable basis if the educational
assistance is job-related. To qualify as job-related, the educational
assistance must:
“Job-related”
employer educational assistance isn’t subject to a dollar limit. To be
job-related, the education can’t qualify the employee to meet the minimum
educational requirements for his or her employment or other trade or business.
Educational
assistance benefits meeting the above “job-related” rules are excludable from
employees’ income as working condition fringe benefits.
Assistance
with student loans
Some
employers also offer student loan repayment assistance as a recruitment and
retention tool. Starting in 2024, employers can help more. Under the SECURE 2.0
law, an
employer will be able to make matching contributions to 401(k) and certain
other retirement plans with respect to “qualified student loan payments.” The
result of this provision is that employees who can’t afford to save money for
retirement because they’re repaying student loan debt can still receive
matching contributions from their employers.
Contact
us to learn more about setting up an education assistance or student loan
repayment plan at your business.
© 2023