Tuition Assistance laws & compensation compliance analysis

Tuition Assistance: What you need to know

Many employers offer assistance to employees who attend outside educational programs, particularly in technical areas of study. These programs should have well-defined guidelines. Common policies include:
Prior approval by supervisor. Approval by a supervisor before a course is begun can ensure that the program will have some relationship to the employee's future within the company.
Time of payment. For programs lasting a year or more, most employers make reimbursement at the end of each term rather than at the end of the entire program. Some employers arrange to have schools bill the company directly, so the employee/student does not have to pay the tuition and then wait to be reimbursed.
Verification. Requiring the employee/student to obtain verification of successful completion of the program of study, and/or to submit receipts, is a prudent policy.
Performance standards. Many employers require employees to obtain a specified grade to be entitled to reimbursement.
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Unless employer-provided tuition assistance qualifies for a tax exemption under a specific provision of the Internal Revenue Code (IRC), it is considered as taxable income to the employee. Tax-free tuition assistance is much more valuable to the employee and also saves the employer its share of employment taxes. Tuition assistance qualifies for tax-free status if the aid is provided under an education-assistance program that meets the requirements of IRC Sec. 127 or if the courses taken are directly job related so that the cost is considered to be an employer business expense under IRC Sec. 162.
IRC Sec. 127 allows employers to provide up to ...

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