TurboTax

File with experts
File your taxes
Experts at your fingertips

An expert helps with your taxes, or does them for you
TurboTax Expert Full Service

TurboTax Expert Assist

TurboTax Self-Employed
Prior year taxes
File myself
File myself
Do it yourself

We'll guide you step-by-step
TurboTax Do It Yourself

TurboTax Self-Employed

TurboTax Desktop
TurboTax Free

Activate your product

Prior year taxes
Business
Business
Business taxes

Get your T2 corporate return done right, your way
TurboTax Business

TurboTax Business Desktop
Tax situations
Tax situations
Tax situations

Find extra guidance for your big life moves
For investors

For 25 and younger

For self-employed

For new to Canada

For life changes
Resources
Resources
Resources

Explore tax tools, get tips, and read reviews
Personal income tax calculator

RRSP savings calculator

Learning hub

TurboTax support (FAQ)

TurboTax community
Pricing

Community

Solved

How to tell if Employer Provided Tuition Assistance is included in W-2.

Forum|Forum|6 years ago
June 1, 2019
8 replies
0 views

I'm having trouble figuring out if my employer included the tuition reimbursement I was given in the salary (box 1) on my W-2. Is there an easy way to determine that?

TurboTax Premier Online

Best answer by Hal_Al

My hospital paid me $5000.00 for nursing tuition I paid last year. Is that taxable for the year 2023. They did not take out taxes

Q. My hospital paid me $5000.00 for nursing tuition I paid last year. Is that taxable for the year 2023?

A. Simple answer: No. There is nothing you need to report on your taxes.

But, it may depend on the details. Employers are allowed to reimburse employees for tuition, tax free, up to $5250, assuming the employer has a qualified tuition reimbursement plan. A hospital is a big enough entity, that their plan is probably qualified. They are allowed to reimburse you in 2023, for tuition paid, by you, in 2022 and the payment is still tax free. Since, they did not take out taxes, that's another indication that it's tax free. But, you may want to verify that with them.

Your next question might be: can I claim the tuition credit on my 2022 tax return. The answer is no, because you were reimbursed with tax free money. This is true, even if the reimbursement occurred in the following year.

Hal_Al

Employee

There's nothing easy in taxes.There may or may not be a notation in box 14 about the reimbursement. You could compare your year end wage statement to your W-2. You may just have to ask your employer.

By law your employer can only give you $5250 maximum, tax free. If your tuition was less than that, and you employer reimbursed it all; it’s safe to assume it does not need to be reported. You do not even need to enter your 1098-T. You have nothing to claim.

If you got more than $5250, the amount above $5250 is usually already included in box 1 of your w-2 and you do not need to enter anything additional on your tax return. Since you have essentially paid tax on that part, it is considered your after tax money and that amount can be used to claim the tuition credit.

________________________________________________________________________________________

TAX LOOP HOLE for this situation

Usually, you may not claim a tuition credit for expenses paid (or reimbursed ) by tax free money (e.g. scholarships, grants, VA benefits or employer reimbursement). Employers are allowed to reimburse employees up to $5250 tax free. Anything over that is taxable and included as taxable income on your W-2. So, any expenses over $5250, including books, may be used to claim a tuition credit.

But, you have a choice (actually a tax loop hole). You may choose to include any of the $5250 (normally tax free) reimbursement as taxable income. Since taxed income is considered your money, you can use that amount to claim the education credit.

It may get a little complicated reporting the now taxable reimbursement correctly. It's best explained by example. Lets say you paid $6000 in tuition, in 2016, and use $4000 of that to claim the tuition credit ($4000 is all you need to get the maximum amount of credit on the American Opportunity Credit).
Your employer reimburses you $6000. On your 2016 W-2, he shows $5250 (the maximum allowed) of tax free educational reimbursement and $750 of taxable reimbursement. $750 will have already been included in box 1 of your W-2 as taxable income. You now have to report $3250 (4000-750) as additional taxable income on your 2016 return. $3250 goes on line 21 of form 1040 as "Taxable Reimbursement". TurboTax can not automatically pull that from your w-2. You have to enter it manually. In TurboTax enter at::

Federal Taxes Tab
Wages and income

Scroll down to:
--less common income
---Misc Income, 1099-A, 1099-C..... (Press start)
----On the next screen, select Other reportable income
-----Two screens in, type Tuition reimbursement and $3250

Alternatively (using the numbers in the example), you can use only $750 to claim the tuition credit in 2016. "How do you fill out the 1998-T?" You enter the 1098-T, exactly as shown. Later, in the education interview, you will be asked if you got any employer reimbursement.

Beatlesnow

Can you use this loophole if the employer has paid the university directly as a tuition benefit? My employer paid $3246 as tuition benefit and $1640 as employer scholarship. These payments were paid directly to the university to cover my tuition expense. Can I report these payments as taxable income and then take the American Opportunity Credit?

Hal_Al

Employee

@Beatlesnow - No. You cannot do that if the school’s billing statement specifically shows the scholarships being applied to tuition or if the conditions of the grant are that it be used to pay for qualified expenses. Effectively that is what has happened with your employer's payment going directly to the school.

runamierun

Related to this topic, is there a way to claim back imputed income that was withheld by my employer for my education? Here's the scenario. My employer paid approximately $16,000 for my tuition this year. After they hit the $5250 threshold, they started withholding imputed income from my paycheck. I ended up having around $5700 withheld from my paychecks over the course of the year, like so:

Fees paid by employer in calendar year 2020: $21,000
Fees subject to Imputed Income Tax: $21,000 - $5,250 = $15,750
Estimated tax: $15,750 X 36.25% = $5709

Is there any way to claim back all or part of that $5709 which came out of my paychecks? According to a quiz type thing I took on the IRS website, my coursework meets the criteria for "job related." It's not a requirement of my job, but it will help me in my current job and can help me advance. I'm in a graduate program, if that info is helpful as well. Thanks! @Hal_Al

Hal_Al

Employee

Q. Is there any way to claim back all or part of that $5709 which came out of my paychecks?

A. Yes, to part. Almost certainly no to all.

The $5709 withholding is included in box 2 of your w-2 (unless that amount also include FICA) and will be credited to your calculated income tax.

If your coursework meets the criteria for "job related", your employer was not required to include it as imputed income (he treats it as job training, not education reimbursement). That's a determination they have to make. Once it's included on your W-2, you cannot claim it as a deduction, on your tax return. Your only chance is to get your employer to give you a corrected W-2.

hajduk

I have a related question. My employer reimbursed me $9,000 for my grad school - $3,750 was taxed so I did not get the full amount. Can I deduct the taxed amount ($3,750*25%=$937.5) as tuition credit/deduction since I had to pay out of pocket for that portion?

Hal_Al

Employee

Q. Can I deduct the taxed amount ($3,750*25%=$937.5) as tuition credit/deduction since I had to pay out of pocket for that portion?

A. Yes, but not exactly like that.

It's actually better. You may use the full $3750 to claim either a tuition credit or the Tuition and Fees deduction. The credit is usually better, but TurboTax will make that decision for you (you can override it). You can do that because the tuition was essentially paid with YOUR after tax money.

Alaska_Pete

Related question for super user @Hal_Al. I'm a teacher in rural Alaska. Our school district makes a deal with teachers to pay the University of Alaska directly for their continuing education, for example to add a special education credential, in exchange for the teacher's commitment to work for the district. The teacher must complete the program and then work for the district for X number of years, and then they don't have to repay anything. If they fail to complete the program, or decide not to work for the district for the required length of time after completing the program, then they have to repay the district, and sometimes with interest.

My question centers around if this is a "scholarship or grant" (1098-T box 5) or a loan. It seems to me it's a loan, which would make us eligible to use the full amount paid by the school district on our behalf to qualify for the lifetime learning or american opportunity credit. But when we get our 1098-T forms, the amount in box 5 matches the amount in box 1. I think the university assumes, since it's paid by our employer, that it's "free" money. And it might be forgiven down the road, or it might not be, depending on what happens in the future. Quite a few people do not end up fulfilling the service time requirement and have to repay (turnover is a huge problem here). Do you have an opinion on this? I know that the instructions to the university say that they should NOT include any loan payments in box 5.

bramirez5

My employer provided Tuition assistance of $5,250 and my full tuition was $10,902. I am a little confused on the question regarding Other tax-free assistance. The question is Enter the amount received. Don't include amounts already listed on a W-2 or other tax form. Of course the $5,250 is on my W-2, but only as part of Gross Income and was not taxed. Do I then enter this amount of $5,250 in the Employer-Provided Assistance section?

Hal_Al

Employee

Q. Do I then enter this amount of $5,250 in the Employer-Provided Assistance section?

A. Yes.

marpraf

thanks for the previous info @Hal_Al. seems like you are quite the expert in this topic! if you could please advise on the following I would appreciate it!

in 2021 I received employer tuition reimbursement totaling $5,250 but my total tuition expense to the university was $8,467.68. my year to date statement states "nontax tuition" as $5,250 but also $750 as "taxable tuition." there is no amount listed in box 14 on my W2. any suggestions on the amount I should claim in my "Employer Provided Assistance" in the educational tax credits / suggestions in general?

my education expenses totaled $1,036

thanks for your help! looking forward to your response!

Hal_Al

Employee

@marpraf

Q. What amount I should claim in my "Employer Provided Assistance" in the educational tax credits?

A. $5250.

Any portion of the employer assistance, that you pay tax on (the amount above $5250), is considered your money and can be used to claim the tuition credit. For tax purposes, that amount is no longer "assistance", it's salary.

Photoles

My employer will cover 5,250 direct pay not tax, but anything after that will be taxable and withheld on my check through an employer grant. It says it will take about 38,000 total to get my MBA. Can I get a credit any of it? Is it worth it to still go to school if I will have to pay taxes on the extra amount? Also, would I avoid paying less taxes if I choose the option for reimbursement for the money after 5,250 annual.

Hal_Al

Employee

Q. My employer will cover 5,250 direct pay not tax, but anything after that will be taxable. Can I get a credit any of it?

A. Yes. Up to $10,000 of tuition, each year, paid with after tax money (whether you regular income or an "employer grant") is eligible for the Lifetime Learning Credit (LLC), which is 20% of the amount paid. So, essentially you get most of that tax back.

Q. Is it worth it to still go to school if I will have to pay taxes on the extra amount?

A. Yes.

Q. Would I avoid paying less taxes if I choose the option for reimbursement for the money after 5,250 annual.

A. There is no option. What you describe is the standard employer plan, per IRS rules (the first $5250 is tax free; anything over is taxable income.

USER 4926821

@Hal_Al — been reading a few of your answers.

I received $5250 from my employer (university) this year. However, I received a total of $12000 in total payments received (box 1). The amount over $5250 is on my W2 in box 1. My employer makes me pay them at a rate of 32.65% back to them in a lump sum for the amount over $5250. Am I being taxed twice? To me it seems like I am paying twice. My question is: Can I deduct the amount above $5250 to claim the LLC?

Hal_Al

Employee

Q. My question is: Can I deduct the amount above $5250 to claim the LLC?

A. Yes, since the tuition was essentially paid with your after tax money.

Q. My employer makes me pay them at a rate of 32.65% back to them in a lump sum for the amount over $5250.

That doesn't make any sense. One payment of 32.65% or several payments until it's all paid back? You sure it's not just 7.65% (the FICA tax your employer paid of the benefit). Or did they also include a "tax allowance" in box 1 of the W-2 that they are asking you to pay back, 25% being the IRS mandated withholding on lump sums (25 + 7.65 = 32.65). You should ask for an explanation.

USER 4926821

@Hal_Al —

Here is what I received:

They pay the tuition taxes up front and allow us to reimburse them back over a longer period. It is paid for and added to income, on the W2, as a lump sum and is taxed at a lump sum rate of 32.65% for all employees. They pays the taxes when they are due (the semester the courses are taken) and then we pay them back.

I am paying the taxes on the total amount above $5250 to my employer.

weatherfan1996

Hi @Hal_Al ,

I have a similar situation to the hospital example provided by another user and I have a few questions…

In 2021, I paid $9000 in tuition and fees (reported on 1098). This was the only year of recent education (obtained masters degree). I received two employer tuition reimbursements: one in 2021 for $4180, the other in January 2022 for $4530. None of these tuition reimbursements appear on my W-2s for either 2021 nor 2022. I took the lifetime learning credit in 2021 and received a credit amount of $964. For 2022 taxes, I calculated $906 in education credit recapture tax. After filing my 2022 taxes, I received a check from the IRS in the exact amount of $906, presumably a refund of the recapture tax. The subsequent letter from the IRS stated I had overpaid taxes. I have cashed this check and set aside the money.

My questions are…

A. The two tuition reimbursements from my employer are both tax free because I received each of them in separate tax years and each reimbursement is under the $5250 threshold, correct?

B. Because I received the 2022 reimbursement that was for 2021 tuition, I must re-calculate the lifetime learning credit and pay education recapture tax, right?

C. If the answer to B is yes, what should I do with a $906 I received from the IRS after I filed my 2022 taxes? Should I keep it or should I use the online IRS system to pay it back?

Thanks in advance for your help!

Hal_Al

Employee

EDITED 3/18/23

Apparently you did it correctly.

See page 27 at https://www.irs.gov/pub/irs-pdf/p970.pdf and page 32 at https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

Filing an amended return, isn't necessarily "wrong". But, you can avoid interest and openly if you can get the IRS to accept your 2022 return, as submitted. I would try calling the IRS at the number on the letter.

Q. The two tuition reimbursements from my employer are both tax free because I received each of them in separate tax years and each reimbursement is under the $5250 threshold, correct?

A. Correct.

Q. . Because I received the 2022 reimbursement that was for 2021 tuition, I must re-calculate the lifetime learning credit (LLC) and pay education recapture tax, right?

A. Half right. You must re-calculate the lifetime learning credit. But, this is not a recapture situation. You do not report anything on your 2022 tax return.

Q. If the answer to B is yes, what should I do with a $906 I received from the IRS after I filed my 2022 taxes? Should I keep it or should I use the online IRS system to pay it back?

A. Keep it. The IRS was correct to refund it to you, as your 2022 return was technically erroneous. You must prepare an amended 2021 tax return, eliminating the LLC, and send them a new check.

How to amend https://ttlc.intuit.com/questions/1894381-how-to-amend-change-or-correct-a-return-you-already-filed

I'm curious. How did you report the $906 on your 2022 return? What form, what line?

weatherfan1996

Thank you @Hal_Al for the quick reply.

Admittedly, I used H&R Block software. It did not require me to fill out any supplemental forms/worksheets for the recapture. It only asked me to put the calculated tax on the "Education Recapture" line within the Additional Taxes section. It did put "ERC $906" text at the top of Page 2 of the 2022 1040.

Regarding amending the 2021 tax return, would I now have to pay penalties and/or interest because I have to write them a check? For context, I had a refund of $3,069 (includes Lifetime Learning Credit) on the original 2021 1040.