Back-to-school season is a great time to think about how you can help your staff get the education and training they need to improve and become better employees. When considering how to support their education, remember that there are some ways to do it that are tax-free for employees and do not involve employment taxes such as FICA, FUTA, or state unemployment tax. Always consult your tax advisor or attorney for specific guidance.
### Pay for Work-Related Courses
You can cover the cost of any education and training that is related to your employees’ work. This benefit is fully tax-deductible for the company and tax-free for employees as a “working condition fringe benefit.” This type of benefit is a payment that if the employee had made, would be personally deductible for them. For education, it’s deductible if it maintains or improves job skills and does not lead to a new trade or business. For more information, refer to IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits.
### Pay for General Education
You can set up an education assistance plan to help employees with their education costs, whether or not they are job-related. Tax-free reimbursement under this plan is capped at $5,250 per year per employee. This money can cover tuition, fees, books, equipment, and supplies. If the reimbursements go above this limit, the extra amounts become taxable wages unless they qualify as a working condition fringe benefit. Note that the plan cannot favor highly-compensated employees or provide more than 5% of its benefits annually to shareholders and owners. Again, amounts paid by the company are fully deductible. For more guidance, see IRS Publication 15-B.
### Reward Graduates
Even if you don’t pay for any part of an employee’s education, you can recognize their accomplishment by giving the graduate a promotion and a raise if appropriate. Such rewards can be motivational and demonstrate your appreciation. From an employer’s perspective, recognizing an employee who achieves a higher education level can help retain them. Without such recognition and compensation, the employee might seek employment elsewhere where their education is valued more.
### Provide On-Site Training
Sometimes, a higher education degree may not be what your employees need. Job training to keep up with technology, learn sales techniques, or improve workplace safety can be very beneficial for both employees and your business. This kind of training helps your staff adapt to changes, operate more safely and efficiently, and achieve greater job satisfaction. Today, on-site training can be done through online courses or by bringing trainers in-house. The cost of this training is fully tax-deductible for your company.
### Help with Student Loans
Several employers are now helping employees pay off their student loans. Currently, this type of compensation is taxable to employees and subject to employment taxes. However, pending legislation like the Employer Participation in Student Loan Repayment Act (H.R. 3861) and its Senate counterpart S. 2457, would create an exclusion from gross income for employer repayments of student loans. This bill does not set a dollar limit on the amount that can be repaid tax-free. Currently, employees that receive reimbursement and are taxed on it can deduct their student loan interest up to $2,500. However, if the measure is enacted, employees enjoying this repayment benefit wouldn’t be able to deduct the interest on loans repaid by employers.
### Conclusion
Supporting the education of your employees can drive progress in your business. While doing so, be aware of the tax implications for both you and your staff.
