According to the IRS, You must pay taxes on educational benefits you receive from your employer if they are over a certain amount. For 2010, the amount is $5,250. Any amount over this should be added to your wages on your form W-2. There is one exception, and that is if the money was used to pay for expenses that you could have claimed as business expenses, if you had paid them yourself. In this case, you do not have to pay taxes on the educational benefits, because they are considered work condition fringe benefits.
Most companies require that you remain employed by them for a certain amount of time after they have paid for your education. This time period may range from 6 months to over 1 year. At some companies, if you break your commitment by leaving the company early, you must pay back all or a portion of the amount they reimbursed you for your education.
Most companies limit the amount of money they will pay for your education. This limit may be per term, per year or over the lifetime of your employment. In some cases, the benefit is a percentage of the educational cost. In addition, some companies further limit the percentage of coverage based on the grades achieved. Benefits are often limited by the degree type. Undergraduate degrees may not be eligible for as much of a benefit as graduate degrees, for instance. The benefit amount paid by the company may not be enough to complete your educational program or enough to cover the full cost for a term. Be prepared to pay the difference with your own funds or other sources of funding, like financial aid.
To ensure that tuition reimbursement will benefit the company in some way, your company may only approve certain programs of study. The programs of study may also be limited to certain levels. Certificate programs may not be covered and non-credit coursework may not be covered. In most cases, the programs of study are limited to programs related to your current job, jobs available at the company, or subject areas needed by the company. Most companies will pay for degree programs in business or IT. However a manufacturing company may not pay for a program in a healthcare field, such as nursing.