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Employee Tuition Assistance

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Employee Tuition Assistance Programs

More than 80 percent of public sector agencies provide tuition assistance to their employees. Many private companies do as well. This tool spells out the reasons for implementing an employee tuition assistance program, along with some tips for doing it effectively. Before setting up an employee tuition assistance program, consider the following:

What you'll reimburse: Decide what types of classes — vocational, technical or academic — your program will cover. Determine if your reimbursement will cover books and other related fees. Some companies focus on degree programs, others on professional development and training. Figure out your company’s needs first; then tailor your program accordingly. Since the IRS lets companies contribute up to $5,250 tax free, some businesses cap their reimbursement fee at this amount.

Eligibility: Determine whether or not you'll reimburse both full-time and part-time employees, and other terms for tuition-reimbursement eligibility. For instance, an employee must work at your company for six months before they can take advantage of the program.

Types of courses: Clearly spell out the types of courses you'll pay for. Most employers only pay for classes that enhance an employee's job-related skill set. If you have doubts about the credibility of a program, ask the employee to bring in a course description.

Success requirements: Determine whether you’ll require employees to complete their classes with a minimum grade to receive reimbursement. Some companies reimburse employees on a sliding scale; for example, an "A" is reimbursed at 100 percent, a "B" at 80 percent and a "C" at 50 percent. Many companies provide no reimbursement if the employee fails the course.

Duration: The employer may require that the employee complete the program within a certain period of time.

Schedule flexibility: The company might consider a policy related to scheduling flexibility for employees in a tuition assistance program. Consider letting employees telecommute or work flexible hours during exams and deadlines.

Length of stay: Many companies require employees to stay with the company for a specific length of time after they receive the benefits. If they leave too soon, the tuition benefits must be repaid.

Tax implications: The IRS lets companies contribute up to $5,250 tax free, with certain limitations. For example, advanced academic or professional degrees generally won't qualify because they are perceived as qualifying the employee for a new trade or business.

Generally, tuition assistance can be deducted from your business expenses if the education:

• Is required by the employer or the law to maintain the employee's salary, status or job.
• Maintains or improves skills needed in the employee's present job.

Tuition, books, supplies, lab fees, similar costs and certain transportation costs are generally deductible.

Consult with an accountant about the tax ramifications for both the company and its employees before setting up a program. For more information, take a look at IRS Publication 970: Tax Benefits for Education.

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