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Home : Essentials of Payroll : Education Reimbursement
Education ReimbursementEducation ReimbursementThe reimbursement of an employee's educational expenses by the employer is not income to the employee if the education being reimbursed is related to his or her current job and will either serve to maintain or improve the person's skills for conducting that job. However, the payments are income if the education is undertaken to promote the person or shift him or her into an unrelated position requiring different skills. An employer can change the reportable income situation somewhat by creating an educational assistance plan (EAP). This is a written plan that an employer creates on behalf of its employees, who are the only recipients of educational assistance under the plan. The plan is only acceptable to the IRS if it does not favor highly compensated employees or shareholders, does not give employees the option to receive cash instead of educational assistance, and is launched with a reasonable amount of notice to employees. For this plan, employees are considered to be current staff; long-term leased staff; former staff who retired, were laid off, or who left due to disability; or a sole proprietor or business partner. Expenses covered under the plan include school fees, supplies, books, and equipment related to training; they do not include expenses for lodging, meals, and transportation, nor education related to sports or hobbies unless this education is both related to the business and is part of a degree program. If all of these conditions are met, then using an EAP will allow each employee to exclude up to $5,250 per year for educational assistance paid by the employer 151
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