In general, gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee if the assistance is furnished pursuant to a qualified educational assistance program.
A qualified program may benefit only the employee. A program that provides benefits to spouses or dependents of employees is not a qualified program. Benefits paid from an unqualified program are fully taxable.
The exclusion of up to $5,250 per year of educational assistance benefits received from a qualified program provided by an employer applies to both graduate and undergraduate courses, whether or not the course is job-related.
Benefits from a qualified educational assistance program that exceed the $5,250 threshold are generally taxable unless they can be excluded as a “working condition fringe benefit.”
To meet the requirements of the “working condition fringe benefit” exclusion, the benefit must meet certain tests. Specifically, the course:
- Maintains or improves skills that an employee is required to have for employment; or
- Is expressly required by the employer or is legally required in order to retain an established employment relationship, status or rate of compensation.
The following types of educational instruction do not qualify as job-related:
- Courses needed to meet the minimum educational requirements to qualify for employment; or
- Education that will qualify an employee for a promotion or transfer to a new trade or business.