Educational assistance programs

Scope

A company must establish a written plan to assist employees financially for approved educational courses.

Regulatory citations

• None

Key definitions

• Educational assistance program: 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.

Summary of requirements

In order to be considered a qualified educational assistance program which is nontaxable income to the employee, certain requirements must be met under Internal Revenue Code Section 127 :

• Must be a written plan;
• May be for graduate or undergraduate courses;
• Dollar limitation of $5,250 per calendar year;
• Must not discriminate in favor of highly compensated employees.

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 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 educational assistance program does not have to be job-related in order 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.
• 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.
• The policy must not discriminate in favor of highly compensated employees.
• A policy may designate the approved institutions of higher learning often defined as technical or trade schools, accredited colleges and universities. In addition, when suitable courses are not available locally, or when an employee’s work schedule limits his/her method of study (or if otherwise approved by the company for legitimate business reasons), the company may grant approval for enrollment in certain e-learning and correspondence courses.
• The employer may also impose certain restrictions in order for reimbursement to be made to the employee such as the attainment of a minimum grade for a successfully completed course.
• Course attendance should not interfere with the employee’s regular job and must typically be taken on the employee’s own time (unless an exception is granted).

The company usually expects that individuals receiving significant reimbursements for completion of approved courses will reciprocate to the company in productivity and service longevity. Any employee who voluntarily terminates employment with the company within a specific time period after completing a course of study for which reimbursement was received under the policy may be required to repay a certain percentage of the money received during the preceding 12 months.

Spouses or dependents are not eligible for this program.