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.
