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Taxpayers can exclude certain educational assistance benefits from their gross income if these benefits are provided under an educational assistance program. These benefits include payments for tuition, fees, books, supplies, and equipment, as well as principal or interest payments on qualified education loans made by the employer from March 27, 2020, through January 1, 2026 (unless extended by future legislation).
Taxpayers can receive up to $5,250 in educational assistance benefits per calendar year tax-free, and employers should not include these benefits in the wages, tips, and other compensation shown in box 1 of the employee's Form W-2.
However, these tax-free education expenses cannot be used for any other deduction or credit, such as the lifetime learning credit.
If benefits are provided under a program that does not comply with the requirements of an educational assistance program under the Internal Revenue Code, or if the benefits exceed $5,250, the amounts may still be excluded if certain conditions are met.
Employers can generally deduct amounts paid under an educational assistance program as a business expense.
