If the educational reimbursement is considered compensation for services rendered, it's considered imputed income and is taxable to the employee. This means the employee must include it in their gross income and pay taxes on it. The employer will generally issue a W-2 reflecting this income.
Exceptions exist:
* Qualified Tuition Reduction: If the employer provides tuition reduction as a benefit under a formal plan, and the employee works for the educational institution offering the benefit, it might be excluded from income under certain circumstances. This is a very specific exception.
* Section 127 Educational Assistance: This section *used to* allow employers to exclude educational assistance payments from an employee's income, but this provision expired at the end of 2017. Therefore, it's no longer relevant for current tax situations.
* Reimbursement for job-related expenses: Reimbursement for courses or training directly related to the employee's current job duties *and* required by the employer might not be considered taxable income, but this is a narrow exception and often subject to scrutiny by the IRS. The line between "required" and "helpful" can be blurry.
In short: Unless a specific exception applies (and those exceptions are rare), an employee is generally responsible for paying taxes on any educational reimbursement received from their employer. The safest course of action is to consult a tax professional to determine the taxability of a particular situation. The IRS guidelines should also be carefully reviewed. Assuming the reimbursement is taxable income without proper investigation is dangerous.