HOUSTON BUSINESS REVIEW

THE CPA CORNER: EMPLOYER TAX-FREE EDUCATION
By C. Kevin Moore

Kevin Moore is the Principal with C. Kevin Moore & Associates and has two decades of experience as a Certified Public Accountant. Each week he provides the information you need to grow and protect your business.

Employer Tax Free Education Benefits

Many employers provide employees with tax free education benefits. The two most common are scholarships and grants under IRC section 117 and education-assistance programs under section 127. There is, however, a third alternative: CPAs can recommend using the working condition fringe benefit of IRC section 132(d).

Scholorships under section 117(a) are tax free if the recipient is a degree candidate at a qualified education institution and uses the funds for tuition, fees, books, supplies and equipment required for instruction. If the scholarships represent payments for past, present or future employment services, the employee must include them in income.

Section 127 allows employers to offer up to $5,250 annually per employee in tax-free education help as long as the benefits are provided by reason of their employment relationship. This benefit covers graduate as well as undergraduate education but requires a formal written plan that must be open to everyone. These plans can be costly and burdensome for employers to administer.

Under section 132(d) employers can offer a tax-free working condition fringe benefit for any expense employees can deduct on their own tax returns under IRC section 162. This typically includes travel, meals and professional dues but also can include education that maintains or improves job skills or meets requirements for the employee to remain in his or her current position. Providing education benefits under section 132 (d) is a good idea for employers because no written plan is required and there is no dollar limit on benefits. It is possible for employers to provide benefits under several different code sections at the same time. In general, though, section 132(d) is the most flexible alternative.

Education makes better employees.