The Internal Revenue Service and the Treasury Department issued guidance Monday answering questions related to educational assistance programs.
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The IRS noted that educational assistance benefits include payments for tuition, fees and similar expenses, as well as books, supplies and equipment. They also include principal or interest payments on qualified education loans made by an employer after March 27, 2020, and before Jan. 1, 2026 (unless they're extended by future legislation).
Taxpayers don't need to pay tax on benefits of up to $5,250 per calendar year and their employer shouldn't include the benefits in their wages, tips and other compensation shown in box 1 of their Form W-2.
However, any tax-free education expenses can't be used as the basis for any other deduction or credit, including the lifetime learning credit. If benefits are received under a program that doesn't comply with the requirements for an educational assistance program under the Tax Code or if the benefits exceed $5,250, the amounts may still be excluded if certain requirements are satisfied. Amounts paid under an educational assistance program are generally deductible by the employer as a business expense.
The FAQ page answers questions such as what is an educational assistance program; what are educational assistance benefits; what is the total amount that an employee can exclude from gross income per year; what is a qualified education loan; how can payments of qualified education loans be made; are employer payments of qualified education loans for spouses and dependents excluded from gross income; can student debt be reimbursed; can self-employed individuals, shareholders and owners receive educational assistance; and are there other exclusions from gross income for educational assistance?
