Your employer may be able to provide you, tax free, up to $5,250 of
educational benefits each year. This means that you may not have to
pay tax on amounts your employer pays for your education. Your
employer will be able to tell you whether the benefits are tax free.
You cannot use any of the tax-free educational expenses paid for by
your employer as the basis for any other deduction or credit,
including the Hope credit and the lifetime learning credit.
Educational benefits.
Educational benefits that your employer can provide tax free
include payments for tuition, fees and similar expenses, books,
supplies, and equipment. The payments must be for undergraduate-level
courses that begin before January 1, 2002. The payments do not have to
be for work-related courses.
Educational assistance benefits do not include payments for the
following items.
- Meals, lodging, transportation, or tools or supplies (other
than textbooks) that you can keep after completing the course of
instruction.
- Courses involving sports, games, or hobbies unless they:
- Have a reasonable relationship to the business of your
employer, or
- Are required as part of a degree program.
- Graduate-level courses normally taken under a program
leading to a law, business, medical, or other advanced academic or
professional degree.
Benefit over $5,250.
If your employer pays for more than $5,250 of educational benefits
for you during the year, you must generally pay tax on the amount over
$5,250. Your employer should include in your wages (box 1 of your Form
W-2) the amount which you must include in income.
Working condition fringe benefit.
However, if the payments also qualify as a working condition fringe
benefit, your employer does not have to include them in your wages. A
working condition fringe benefit is a benefit which, had you paid for
it, you could deduct as an employee business expense. For more
information on working condition fringe benefits, see Working
Condition Benefits in chapter 2 of Publication 15-B,
Employer's Tax Guide to Fringe Benefits.
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