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Qualifications
For an employer to offer a qualified educational assistance program which is nontaxable income to the employee, certain requirements must be met under Internal Revenue Code Section 127 and 26 CFR 1.127-2:
The courses are not required to be job related. However, in general, courses related to sports, games, or hobbies, are only covered under Section 127 if they are reasonably related to the employer’s business or required as part of a degree program.
A company must establish a written plan to assist employees financially for approved educational courses — graduate or undergraduate, professional certifications and classes to prepare for professional certifications. Any type of course, certification, class or anything covered under such a policy must usually be pre-approved by Human Resources.
An approved course of study is typically defined as a course, degree program or professional certification that maintains or improves skills in the employee’s present job or a job to which the employee could likely/reasonably be promoted or transferred. However, it does not have to be job-related to be nontaxable. Training that is necessary to perform or improve a job (e.g., forklift training and certification or attending a seminar or conference) would fall under training, not the Educational Assistance program.
Annual reimbursement maximum
Under this policy an employee may be reimbursed a designated percentage for each approved course or professional certification, and related expenses (e.g., tuition, books, supplies, equipment necessary for class, but not tools or supplies which employee may keep after the course is completed), up to $5,250 per calendar year. Reimbursement of any amount over $5,250 is considered taxable income according to IRS regulations.
Employer requirements and restrictions may be set
An educational assistance program offered by an employer may set numerous requirements and restrictions, including:
Exclusion for employer payments of student loans
Section 2206 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) expands the definition of educational assistance to include certain employer payments of student loans paid after March 27, 2020. Qualified education loans are defined in chapter 11 of IRS Pub. 970. This exclusion expires January 1, 2026, unless extended by future legislation.
Qualifications
For an employer to offer a qualified educational assistance program which is nontaxable income to the employee, certain requirements must be met under Internal Revenue Code Section 127 and 26 CFR 1.127-2:
The courses are not required to be job related. However, in general, courses related to sports, games, or hobbies, are only covered under Section 127 if they are reasonably related to the employer’s business or required as part of a degree program.
A company must establish a written plan to assist employees financially for approved educational courses — graduate or undergraduate, professional certifications and classes to prepare for professional certifications. Any type of course, certification, class or anything covered under such a policy must usually be pre-approved by Human Resources.
An approved course of study is typically defined as a course, degree program or professional certification that maintains or improves skills in the employee’s present job or a job to which the employee could likely/reasonably be promoted or transferred. However, it does not have to be job-related to be nontaxable. Training that is necessary to perform or improve a job (e.g., forklift training and certification or attending a seminar or conference) would fall under training, not the Educational Assistance program.
Annual reimbursement maximum
Under this policy an employee may be reimbursed a designated percentage for each approved course or professional certification, and related expenses (e.g., tuition, books, supplies, equipment necessary for class, but not tools or supplies which employee may keep after the course is completed), up to $5,250 per calendar year. Reimbursement of any amount over $5,250 is considered taxable income according to IRS regulations.
Employer requirements and restrictions may be set
An educational assistance program offered by an employer may set numerous requirements and restrictions, including:
Exclusion for employer payments of student loans
Section 2206 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) expands the definition of educational assistance to include certain employer payments of student loans paid after March 27, 2020. Qualified education loans are defined in chapter 11 of IRS Pub. 970. This exclusion expires January 1, 2026, unless extended by future legislation.