Employer Tuition Assistance Programs
Tuition assistance benefits from employers are generally designed to avoid placing any tax liability on the employee. These programs are a popular benefit, and are used for everything from children's college education to graduate education. According to section 127 of Internal Revenue Code, employees may receive up to $5,250 from their employers without incurring tax liability. Employees can use these benefits to pursue undergraduate or graduate degrees, and need not be degree seeking. Graduate education was granted this status in 2001, and the benefit has since become very popular among MBA students.
There are some limits on tuition assistance. The money must be spent on tuition, fees, books, and other college-specific supplies. It must also be spent on the employee's own education.
Note: this means that benefits toward a spouse's or child's education are not tax-exempt!
Benefits may not be spent on travel, food, or housing. Courses that involve sports, games, or hobby-type activities are also not exempt in most cases. However, if the course is required as a part of a degree program, or is related to the employers' business, it may be included in the benefit.
In addition to current employees, retirees, disabled employees, and laid-off workers are all eligible for employee tuition assistance. If a student works for multiple employers offering the benefit, he or she may not combine the offers. The $5,250 limit is a combined total, not a per-employer limit.