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Educational Assistance Benefits

The employer-provided educational assistance benefits program has been extended. The provision allowing exclusion for educational assistance benefits is effective for tax years beginning after 12/31/96 and for educational assistance benefits paid by an employer for courses beginning before 1/1/2002.

The Educational Assistance Benefits Program allows employers to pay for and deduct up to $5,250 of qualified educational assistance benefits such as tuition, fees, books, and supplies; and exclude the educational assistance benefits from an employee’s taxable income. The education does not have to be job related to be excludable. The educational assistance benefits exclusion no longer applies to expenses for graduate-level courses beginning after June 30, 1996. The educational assistance benefits exclusion also does not apply to expenses for meals, lodging, transportation, or supplies that an employee can keep after completing the education (except for textbooks). Expenses in excess of $5,250 are added to the employee’s taxable wage unless the educational assistance benefit qualifies as a working condition fringe benefit (such as job related educational expenses).

Former employees, regardless of the reason for termination, may participate in an educational assistance benefits program and still be entitled to the income exclusion.

Job Placement Assistance [Rev. Rul. 92-69]

The IRS has ruled that job placement services offered by employers are tax free as long as the services are geared to assisting employees obtaining employment in the same line of work. The employer must also have a business purpose for providing the assistance, such as maintaining employee morale, promoting a positive public image, avoiding wrongful termination suits, or fostering a positive work atmosphere. The tax-free benefits include the value of counseling on interviewing skills, resume preparation, providing office space, and secretarial services.

There are no nondiscrimination requirements, so the benefit is tax free even if the majority of workers involved are top executives. If an employee accepts the assistance in lieu of some other taxable benefit such as severance pay, the benefit becomes fully taxable to the extent that cash could have been elected.

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