This exclusion applies to educational assistance you provide to employees under an educational assistance program. The exclusion also applies to graduate-level courses.
Educational assistance is the amount you pay or incur for your employees’ education expenses. These expenses generally include the cost of books, equipment, fees, supplies, and tuition. However, these expenses don’t include the cost of a course or other education involving sports, games, or hobbies, unless the education:
· Has a reasonable relationship to your business, or
· Is required as part of a degree program.
Education expenses don’t include the cost of tools or supplies (other than textbooks) your employee is allowed to keep at the end of the course. Nor do they include the cost of lodging, meals, or transportation. Your employee must be able to provide substantiation to you that the educational assistance provided was used for qualifying education expenses.
Exclusion for employer payments of student loans:
Employer-provided educational assistance benefits include payments made after March 27, 2020, and before January 1, 2026, whether paid to the employee or to a lender, of principal or interest on any qualified education loan incurred by the employee for education of the employee. Qualified education loans are defined in chapter 10 of Pub. 970.
About the educational assistance program:
An educational assistance program is a separate written plan that provides educational assistance only to your employees. The program qualifies only if all of the following tests are met:
· The program benefits employees who qualify under rules set up by you that don’t favor highly compensated employees. To determine whether your program meets this test, don’t consider employees excluded from your program who are covered by a collective bargaining agreement if there is evidence that educational assistance was a subject of good-faith bargaining.
· The program doesn’t provide more than 5% of its benefits during the year for shareholders or owners (or their spouses or dependents). A shareholder or owner is someone who owns (on any day of the year) more than 5% of the stock or of the capital or profits interest of your business.
· The program doesn’t allow employees to choose to receive cash or other benefits that must be included in gross income instead of educational assistance.
· You give reasonable notice of the program to eligible employees.
Your program can cover former employees if their employment is the reason for the coverage.
For this exclusion, a highly compensated employee for 2022 is an employee who meets either of the following tests.
1. The employee was a 5% owner at any time during the year or the preceding year.
2. The employee received more than $130,000 in pay for the preceding year.
You can choose to ignore test (2) if the employee wasn’t also in the top 20% of employees when ranked by pay for the preceding year.
For this exclusion, treat the following individuals as employees.
· A current employee.
· A former employee who retired, left on disability, or was laid off.
· A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direction or control.
· Yourself (if you’re a sole proprietor).
· A partner who performs services for a partnership.
Exclusion from wages:
You can exclude up to $5,250 of educational assistance you provide to an employee under an educational assistance program from the employee’s wages each year.
Assistance over $5,250.
If you don’t have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be excluded from wages. Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been allowable as a business or depreciation expense. See Working Condition Benefits, for more info.https://www.irs.gov/publications/p15b#en_US_2022_publink1000193667 to read more.