Taxes Incorrectly Withheld for Tuition Benefit

Forum|Forum|6 years ago
January 31, 2020
3 replies
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In 2018, I went back to school while working full time and my employer provided me with tuition assistance through "tuition remission." They paid off my tuition bill and I subsequently saw the tuition amount on my paycheck and had 43% of it withheld as taxes. Late-2019, I realized that my education is actually considered job-related, and as per the IRS, the tuition amount should be non-taxable. I spoke with an accountant at H&R Block and he said that I should speak with my employer to have my 2018 W2 and 2019 W2 corrected (the tuition benefit amount removed from Box 14 - Other). This way, I can have all the taxes that were withheld for tuition returned through my refund in these respective years (it's nearly $10000!). I called my finance department and they seem reluctant to make changes to the W-2, saying that my tuition amount SHOULD be withheld via taxes.

I tried explaining to the finance department that my tuition amount was incorrectly withheld because historically in 2018 and early 2019, I wasn't able to claim my education as job-related. In late 2019 in the most recent semester, I had an option to request tuition benefit and answer several tax questions -- one of these was if my courses are job-related. I marked "Yes" and I am now receiving the tuition benefit without any tax consequences.

Any advice on how to proceed with getting my taxes returned to me for 2018 and 2019?

LindaB1993

I recommend that you file an amended return and indicate that the tuition reimbursement is nontaxable.

You won't be able to amend your return in TurboTax Online or on a mobile device. You'll have to install the TurboTax download software on your computer.

Sign in at TurboTax.com with the user ID you used when you filed your 2018 return.
Select Show next to Your tax returns & documents.
Select Download .tax fIle. You'll need this to amend your return.
- .
Once you've got your .tax file, select 2018, and then select Amend (change) 2018 return.
In the expanded instructions, select download TurboTax Desktop 2018.
Install the TurboTax 2018 software.
Now open your .tax file in the TurboTax 2018 software by choosing File and then Open Tax Return (Windows) or TurboTax and then Open Tax Return (Mac). Browse to the location of your tax file and select Open.
You're ready to amend your 2017 return.

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trickolasAuthor

Hi Linda,

Will I need to speak with my employer about correcting my W-2 for 2018 and 2019? Both of the W-2 shows in Box 14 "Other" that I had a taxable amount withheld (tuition amount). Since my education is not taxable, I believe I will need my W-2 corrected and have that amount removed from Box 14. What are you thoughts on this and how should I approach my employer about this?

Thanks in advance!

LindaB1993

This is probably something that you may want to clarify with your employer to be sure. Did the amount exceed $5250?

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 if you have one. 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, as income. 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.

If your tuition reimbursement is $5,250 or less, your employer should not include it on your W2 and you do not have to pay taxes on it. If your employer reimburses more than the $5,250 limit, they should include the overage in your wages on your W-2 and you will pay taxes on it.

As of 2016, if an employer provides $5,250 or less in tuition reimbursement annually to an employee, that money is tax-free. Additionally, the employee does not need to claim this money on their W-2. ... The money can only be used towards tuition, fees, and school supplies (including books).

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Hal_Al

Employee

The previous discussion on this thread is essentially "off track". There is no exclusion, from taxation, of employer reimbursement for work related tuition. Employers are allowed to set up a qualified tuition reimbursement plan for any education (graduate, undergraduate or trade school; work related or not work related) at eligible institutions. The first $5250 is tax free and is not to be included in box 1 of the employee's W-2. Your employer's plan must meet IRS regulations.

Bottom line: there is no way to file your tax return to "undo" what your employer reports on your W-2. If your employer reported the reimbursement as income, then it is taxable income. If he made a mistake, a corrected W-2 is the only remedy.

If the education was work related, the employee was allowed (prior to 2018) to claim an itemized deduction, subject to the 2% of AGI rule. But starting in 2018, job expenses, including education, are no longer deductible. The $5250 tax free tuition reimbursement is still allowed.

Carl11_2

Employee

Here's why I can not see you getting a corrected W-2 for 2019.

The fact is, your employer paid the employer side of taxes on your income, to the IRS. (referred to as the self-employment tax by some business owners, depending on the type of business.) There is nothing that will change that fact after Dec 31, 2019. That is, unless the employer is willing to file an amended tax return for the business for 2019. For a business with a large number of employees, I don't see that happening for the benefit of just one single employee. Doubtful, but not impossible.

I would think the employer woud be able to "correct" the situation with your 2020 income somehow, so that you would get the credit for the $5250 of tax free income on your 2020 tax return, that you "should" have got credit for on the 2019 return. Hopefully it's possible to do that without affecting your $5250 tax free credit on the 2020 tax return also. Actually, it would be on the employer's tax return, not yours. If possible, the amount in box 1 on your 2020 W-2 would be reduced by $5250 for the 2019 tax year, and another $5250 for the 2020 tax year. I have no clue if that's even possible though, as a corrective measure. But maybe my bringing it up will turn on a lightbulb over someone's head with a "real" helpful response.

bruins_riley12

Thanks for clarifying @Carl11_2 and @Hal_Al. To confirm, my employer (a college) who provides me graduate tuition benefit that relates directly to my job will only be tax-free up to $5,250 because of changes in the rule that affected being able to deduct those amounts effective for filing year 2018.

The W-2 does not include first the $5,250, but my college did state: "has elected to not make the determination on whether or not a course is job related and will include all tuition remission greater than $5,250 in wages. Employees that deem the courses related to their job may deduct the corresponding amounts from taxable income when filing taxes." so this is outdated guidance from my employer then?

Hal_Al

Employee

Q. So, this is outdated guidance from my employer then?

A. Yes

Q. Will only be tax-free up to $5,250 because of changes in the rule that affected being able to deduct those amounts effective for filing year 2018?

A. Not exactly. Only $5250 will be tax free, but not because of the rule change. $5250 was the tax free limit before and after 2018. The two issues are not related.

Tuition remission/reduction for employees of a college are treated differently than a tuition reimbursement plan of a regular employer. The $5250 limit does not apply. The rules are different for graduate and undergrad tuition. See chapter 1 of IRS Publication 970. But, the bottom line still is: if it's in box 1 of your W-2; it's taxable.