Blog By: Jeanne Hines, SPHR, Employee Benefits & HR Services Manager
Many mid-size and large-size businesses offer an education benefit to their employees. Most often, the benefit allows employees to pursue a higher level of education related to their current job. Some companies also allow their employees to pursue education for either a different or higher level position within the company.
Employers differ on how much they’ll pay. Some cap the amount they’ll pay in a quarter or a year. Sometimes education benefits are limited to a technical college or 4-year degree, while others include higher education. Some very generous companies also offer college tuition or scholarship opportunities for sons and daughters of employees. Often, employers will provide reimbursement only for classes where a satisfactory grade is received.
The American Taxpayer Relief Act of 2012 (ATRA) recently extended the $5,250 a year education benefit allowed under Section 127 of the Internal Revenue Code. This portion of the tax code affords employees the opportunity to receive education assistance from their employer for education unrelated to their current job.
Minnesota legislators did not align themselves with Federal legislation, so employer-provided education benefits that do not relate to an employee’s current job ARE taxable benefits. Expenses include books, equipment, fees, supplies and tuition. Minnesota employers are required to withhold Minnesota income tax on these benefits UNLESS the benefits maintain or improve skills needed for the employee’s current job, or unless they’re provided to employees of education institutions or their family members.
If you have already provided education benefits to your employees that we not related to their current job and have not withheld taxes, it is suggested that you inform the employees that it is a taxable benefit. Employees could elect to change their withholding amounts for the remainder of the year, so as to minimize paying in when they file their taxes next year.
For more information, please visit http://www.revenue.state.mn.us/research_stats/research_reports/2012/2012_tax_expenditure_links.pdf
This information is provided as a service of Winona Agency, Inc./WA Insurance Group. Please consult your accountant or tax advisor for additional information.