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Tax implications of employer tuition reimbursement
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27,926 · 3,678 · September 23, 2011 at 06:36 PM
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Last Edited by Dr. J · September 23, 2011 at 06:39 PM
0 Deal Score · 12,078 Views · 11 Comments
I utilize a benefit provided by my employer, probably one of only 2 or 3 people in the entire organization - tuition reimbursement. Of course there are conditions and strings attached to the agreements (e.g. grade requirements, employment requirements, etc). Up until this year, I've only take 2 classes per year, which costs around $4k ($2k/class). In 2011 however, I will have taken 6 classes, which with books and whatnot will be around $13k in reimbursements. Now I know there are IRS regulations about taxation of reimbursements, but the conditions seem unclear. I see the number $5250 slung around as a minimum exemption (e.g. standard deduction), but the full amount may be deductible depending upon certain rules. I have never seen anything regarding the reimbursements in tax documents. When I am reimbursed, it's just like an expense reimbursement - I get a check, cash it, and that's it. No IRS forms, nothing. I am just wondering what to expect this year - I don't want to get to tax time and realize that I'll owe another $1k or something. Also, let's say that the first $5250 is "free"; can I "write off" the remainder ($8k or whatever it is) as an education expense? It seems kind of nonsensical if the excess is taxable, but I can write it off, thereby negating the original levy? [e.g. lifetime learning credit is 20% of the tuition with a max of $2k (e.g. $10k in expenses). SO if your effective tax rate is less than the 20%, the LL credit will pay for the tax levy]
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[btw I am an engineer getting my MBA]
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moey
#2 ·
09-24-2011 at 04:50 AM
Joined Jan 2005 L8: Grand Teacher 3,598 Posts
Your employer chooses whether or not to pay the tax if they consider it related to your job if my understanding is correct. When I took classes I got a letter from the IRS stating I owed XXXX.XX it was a large number, fortunately my company called and straitened it out. Does it show up on your w-2 I seem to recall it showing up but they may have changed how it was recorded. Reply · Helpful Comment?
Dr. J
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#3 ·
09-24-2011 at 06:37 AM
Joined Nov 2005 L10: Grand Master 27,926 Posts 3,678 Reputation Original Poster
Dr. J
what I forgot to mention was that in previous years, when asked for tuition paid I would just enter the NET value (what I paid in tuition less reimbursement), which has been $0 usually but also has been a few hundred $$. Reply · Helpful Comment?
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#4 ·
09-24-2011 at 06:47 AM
Joined Nov 2005 L10: Grand Master 27,926 Posts
So this MAGI number, please correct me, is gross pay, less healthcare premiums, less retirement contributions (401k, 403b and pension), less FSA contributions then less mortgage interest and property taxes?
3,678 Reputation Original Poster
I realize there may be other deductions in there, but those above will constitute the bulk, correct? What I am doing is setting up a spreadsheet to estimate our projected MAGI so I can tune retirement contributions in the last quarter to maximize the LL credit, should I be forced to pay taxes on the tuition. If done right, the LL credit would probably exceed the taxes I'd have to pay on the tuition reimbursement. Reply · Helpful Comment?
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PiratesSayARRR
#5 ·
09-24-2011 at 09:56 PM
Joined Oct 2004 Pirate's Life For Me 11,279 Posts 808 Reputation
Quote from Dr. J So this MAGI number, please correct me, is gross pay, less healthcare premiums, less retirement contributions (401k, 403b and pension), less FSA contributions then less mortgage interest and property taxes?
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I realize there may be other deductions in there, but those above will constitute the bulk, correct? What I am doing is setting up a spreadsheet to estimate our projected MAGI so I can tune retirement contributions in the last quarter to maximize the LL credit, should I be forced to pay taxes on the tuition. If done right, the LL credit would probably exceed the taxes I'd have to pay on the tuition reimbursement. I've already been over this with you in your other thread and I covered it in detail. Mortgage interest and property taxes are not applicable. They are a misc itemized deduction using schedule A. (Below the line) Reply · Helpful Comment?
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Last edited by PiratesSayARRR September 24, 2011 at 10:09 PM. CFA Charterholder MBA
PiratesSayARRR
#6 ·
09-24-2011 at 10:04 PM
Joined Oct 2004 Pirate's Life For Me 11,279 Posts 808 Reputation
Quote from Dr. J I utilize a benefit provided by my employer, probably one of only 2 or 3 people in the entire organization - tuition reimbursement. Of course there are conditions and strings attached to the agreements (e.g. grade requirements, employment requirements, etc). Up until this year, I've only take 2 classes per year, which costs around $4k ($2k/class). In 2011 however, I will have taken 6 classes, which with books and whatnot will be around $13k in reimbursements. Now I know there are IRS regulations about taxation of reimbursements, but the conditions seem unclear. I see the number $5250 slung around as a minimum exemption (e.g. standard deduction), but the full amount may be deductible depending upon certain rules. I have never seen anything regarding the reimbursements in tax documents. When I am reimbursed, it's just like an expense reimbursement - I get a check, cash it, and that's it. No IRS forms, nothing. I am just wondering what to expect this year - I don't want to get to tax time and realize that I'll owe another $1k or something. Also, let's say that the first $5250 is "free"; can I "write off" the remainder ($8k or whatever it is) as an education expense? It seems kind of nonsensical if the excess is taxable, but I can write it off, thereby negating the original levy? [e.g. lifetime learning credit is 20% of the tuition with a max of $2k (e.g. $10k in expenses). SO if your effective tax rate is less than the 20%, the LL credit will pay for the tax levy] [btw I am an engineer getting my MBA] 1) The "$5,250" number has nothing to do with exemptions. It is set by IRC 127, which is the educational assistance code: http://www.taxalmanac.org/index.p...e_pro grams 2) If your employer does not have a formal educational assistance plan or they contribute more than the $5,250, the amount over the $5,250 may be non-taxable under section 132 which are working condition benefits (specifically section 132(d)). However, what this means is that you don't get to take the deduction for your school on your personal tax returns because the tuition was reimbursed or the LL Credit. (http://www.irs.gov/publications/p...1000178154 under Adjustments to Qualified Education Expenses). Aren't you taking any tax classes in your MBA program? Reply · Helpful Comment?
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Last edited by PiratesSayARRR September 24, 2011 at 10:13 PM.
Dr. J
#7 ·
09-25-2011 at 06:30 PM
Joined Nov 2005 L10: Grand Master 27,926 Posts 3,678 Reputation Original Poster
Quote from PiratesSayARRR I've already been over this with you in your other thread and I covered it in detail. Mortgage interest and property taxes are not applicable. They are a misc itemized deduction using schedule A. (Below the line) they don't count towards MAGI? Do retirement contributions? Reply · Helpful Comment?
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Last edited by Dr. J September 25, 2011 at 06:36 PM.
Dr. J
#8 ·
09-25-2011 at 06:34 PM
Joined Nov 2005 L10: Grand Master 27,926 Posts 3,678 Reputation Original Poster
Quote from PiratesSayARRR 1) The "$5,250" number has nothing to do with exemptions. It is set by IRC 127, which is the educational assistance code: http://www.taxalmanac. org/index.p...e_programs 2) If your employer does not have a formal educational assistance plan or they contribute more than the $5,250, the amount over the $5,250 may be non-taxable under section 132 which are working condition benefits (specifically section 132(d)). However, what this means is that you don't get to take the deduction for your school on your personal tax returns because the tuition was reimbursed or the LL Credit. (http://www.irs.gov/publications/p...1000178154 under Adjustments to Qualified Education Expenses). Aren't you taking any tax classes in your MBA program? thanks for the help but the tone is unappreciated. We have a formal agreement, but "plan" I am not sure. I apply to take a class, it's approved, I pay and take it, then am reimbursed based on grades. They reimburse me for tuition + books. These amounts have not appeared on any income sheet (e.g. pay stub, W2, etc) over the past 4 years, but this will be the first year where I will have exceeded the $5250. As I said, even though I receive tuition & payment schedules from the school, I have ignored them on previous returns because I considered them a wash. Reply · Helpful Comment?
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PiratesSayARRR
#9 ·
09-26-2011 at 09:27 AM
Joined Oct 2004 Pirate's Life For Me 11,279 Posts
Quote from Dr. J they don't count towards MAGI? Do retirement contributions?
808 Reputation
No they don't. Retirement contributions do. If you look at form 1040 it will show you everything that is applicable to AGI. Lines 23 - 35. http://www.irs.gov/pub/irs-pdf/f1040.pdf
Quote from Dr. J thanks for the help but the tone is unappreciated. We have a formal agreement, but "plan" I am not sure. I apply to take a class, it's approved, I pay and take it, then am reimbursed based on grades. They reimburse me for tuition + books. These amounts have not appeared on any income sheet (e.g. pay stub, W2, etc) over the past 4 years, but this will be the first year where I will have exceeded the $5250. As I said, even though I receive tuition & payment schedules from the school, I have ignored them on previous returns because I considered them a wash. Tone doesn't construe well through the internet and apologize if I came off harsh as it wasn't intended that way. As for your formal agreement...is it open to all employees? Reply · Helpful Comment?
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Last edited by PiratesSayARRR September 26, 2011 at 09:29 AM. Reason: Automerged Doublepost
Dr. J
#10 ·
09-26-2011 at 10:03 AM
Joined Nov 2005 L10: Grand Master 27,926 Posts 3,678 Reputation Original Poster
Quote from piratessayarrr no they don't. Retirement contributions do. If you look at form 1040 it will show you everything that is applicable to agi. Lines 23 - 35. http://www.irs.gov/pub/irs-pdf/f1040.pdf
tone doesn't construe well through the internet and apologize if i came off harsh as it wasn't intended that way. As for your formal agreement...is it open to all employees? afaik it is available to all, but I am not sure if it's available to the hourly people... Reply · Helpful Comment?
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Last edited by Dr. J September 26, 2011 at 10:08 AM.
PiratesSayARRR
#11 ·
09-26-2011 at 10:22 AM
Joined Oct 2004 Pirate's Life For Me 11,279 Posts
Quote from Dr. J afaik it is available to all, but I am not sure if it's available to the hourly people...
808 Reputation
Well the way I read the language even if it is open to all employees the amount above the $5,250 may be non-taxable as a working condition benefit. Reply · Helpful Comment?
Dr. J
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#12 ·
09-26-2011 at 11:08 AM
Joined Nov 2005 L10: Grand Master 27,926 Posts 3,678 Reputation Original Poster
Quote from PiratesSayARRR Well the way I read the language even if it is open to all employees the amount above the $5,250 may be non-taxable as a working condition benefit.
sorry if I didn't clarify but "hourly people" = union...... so I think they are a different ball of wax Reply · Helpful Comment?
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