Working Fringe Benefit for Excess Tuition Assistance

Forum|Forum|5 years ago
January 23, 2021
2 replies
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My employer is a university who offers employees tuition coverage for attending courses and enrolling in degree seeking programs. I was reading the Education section on Working Fringe Benefits and saw that it indicated that employees who were pursuing education that would increase their abilities in their current role did not need to report the excess tuition payments for themselves that were over the $5250 limit. I wasn't aware of this special rule for employee who are pursuing education relevant to their current job roles. Because of that, my employer has spread the excess tuition payments across a few months of my paychecks and counted it as additional taxable income which has the effect of taking more money out of my paycheck and then withholding too much tax for the government. I have asked my employer to issue me a corrected W-2 and I'm not sure if they will do it; the law says the employer has the "option" to not report excess tuition payments as income on the employee's W-2 but doesn't require them to honor this, which seems odd. So, I'm not sure if I'll received a corrected W-2 or excess tax withholding refund from my employer. However, I read that I can basically change my W-2 to correct it to not count the excess over $5250 as income. When I do this, TurboTax says my employer has withheld too much tax from my paychecks and to contact them for a refund and a corrected W-2.

My questions to the community is:

Assuming my employer doesn't follow through with refunding my excess tax withholdings in light of the working fringe benefit I am eligible for, how can I accurately remove the excess income when I enter my W-2 into TurboTax and make a note of the adjustment for the IRS?
And then, how can I file the form that will request a refund from the IRS for excess withholding my employer already did?

Hal_Al

Employee

Q. how can I accurately remove the excess income when I enter my W-2 into TurboTax and make a note of the adjustment for the IRS?

A. You can't. You must enter your W-2 exactly as shown.

Q. How can I file the form that will request a refund from the IRS for excess withholding my employer already did?

A. You can't. Any non-taxable feature of your employer's plan MUST be handled thru the W-2.

You may have been reading an older version of the employee manual or your employer hasn't updated it since the 2018 tax law change. But, even under the old law, that* is not a totally true statement. Employees were allowed a deduction for job related education. There may have been a provision to allow employers to exclude the excess from the W-2. But if it was on your W-2, you had to report it.

* " employees who were pursuing education that would increase their abilities in their current role did not need to report the excess tuition payments for themselves that were over the $5250 limit. "

zaleraAuthor

Hi @Hal_Al, I appreciate your response but.... I don't think you've got the latest information. 😞

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Here's a link to the current IRS publication that discusses it: https://www.irs.gov/publications/p15b

Titled: Publication 15-B (2020)

Here's the relevant excerpt I think you must not be familiar with:

Assistance over $5,250.

If you don't have an educational assistance plan, or you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be excluded from wages. Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been allowable as a business or depreciation expense. See Working Condition Benefits , later in this section.

Education.

Certain job-related education you provide to an employee may qualify for exclusion as a working condition benefit. To qualify, the education must meet the same requirements that would apply for determining whether the employee could deduct the expenses had the employee paid the expenses. Degree programs as a whole don't necessarily qualify as a working condition benefit. Each course in the program must be evaluated individually for qualification as a working condition benefit. The education must meet at least one of the following tests.

The education is required by the employer or by law for the employee to keep his or her present salary, status, or job. The required education must serve a bona fide business purpose of the employer.
The education maintains or improves skills needed in the job.

However, even if the education meets one or both of the above tests, it isn't qualifying education if it:

Is needed to meet the minimum educational requirements of the employee's present trade or business, or
Is part of a program of study that will qualify the employee for a new trade or business.

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In my case, I do meet the requirements based on my employer and degree program's individual courses.

Having read this new information, any other thoughts to share?

zaleraAuthor

So I have an update. I got in contact with my employer's tax group and showed them the working fringe benefit section of 15-B and they agreed to let me do it. Now, I'm filling out a spreadsheet of each and every course I've taken at the university my degree program is at. They are requesting a course description and a note describing how the course relates to my job role in improving it. They said they will reissues W-2c(s) and a refund will happen with them. However, they did not say they were going to do any refunding, yet. Any thoughts on who should be giving me excess withholdings refunds? TurboTax says my employer should refund these monies to me directly although not sure why this would be true or not.

Hal_Al

Employee

Thanks for letting us know.

You get a great big "attaboy" for getting that done with your employer.

Wait for the corrected W-2. File the corrected W-2 and you will get your income tax refund that way (but not FICA)

I wouldn't push your employer on trying to get it earlier. They've done more than most would. Where TurboTax says my employer should refund these monies to me directly is referring only to FICA (social security & Medicare about 7.65%)

zaleraAuthor

Well thanks! 😀 In the case my employer decided to be snotty and not help me out, I would have filed an amended W2 and stated the justification to go along with it. It’s really odd that it’s something an employer “could” do if you qualify but on a whim they can decide to tell you to go kick rocks. I wonder how I could file a complaint with the process that is currently in place. Unlike many people I suspect, I don’t see tax law as an inerrant unchanging and always correct code. Sometimes people writing that stuff get it wrong or really mess with the power dynamics. I kinda wish there was a version history (like with document repos) to see how it got written and how it has changed and who did the writing. 🙂

Thanks everyone for your time and insights on this, I really appreciate it.