Federal - When do Education Benefits have to be recorded? Time limit?

[Tom58]

Hi,

I'm curious about the education assistance program that many employers offer ( http://www.irs.gov/publications/p970/ch11.html ).
There is a limit of $5,250 that can be provided to the employee tax free per year.

Is there a time limit when these benefits have to be claimed?
When are those benefits counted toward the annual limit?

Additional Information:
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Some HR departments might find it difficult to process tuition reimbursements before the end of the year.
If the reimbursement is paid in January 2013 for expenses for the fall semester that ended in 2012, would that reimbursement money be counted toward the 2012 limit or 2013 limit?
If it is counted toward the 2013 limit, then the question becomes if there is a time limit to claim the reimbursement. That is, could hypothetically claims be paid 2 years after the semester was finished?

Slightly Off Topic:
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I'm asking because universities generally put money paid for the Spring 2013 semesters on the 1099-T for 2012. So even money paid to the university in January ends up on the previous year's 1099-T. That's why I'm confused about how the employer paid benefit is handled.

Thank you

[cbg]

I work in the Benefits office of a major university. If the start date of the class is in the fall of 2012, then the reimbursement goes towards the 2012 tax year EVEN IF the benefit is paid out in 2013.

[Tom58]

I work in the Benefits office of a major university. If the start date of the class is in the fall of 2012, then the reimbursement goes towards the 2012 tax year EVEN IF the benefit is paid out in 2013.

Thank you! That made my day.
I'm trying to find a gentle way of "educating" my HR department as they are telling me that IRS rules state that a benefit is recorded for the year it was paid out. I already read through the tuition benefit manual without finding anything ( http://www.irs.gov/publications/p970/ch11.html ).
Any pointers to where I could look?

[Tom58]

Does anybody else have any experience.

http://www.irs.gov/uac/Tax-Benefits-...rmation-Center
"
If your employer pays more than $5,250 for educational benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.
"

That would suggest that what matters is when the reimbursement is received.
It almost seems as if one can pick and choose.

[cbg]

I can only tell you what we tell our employees. You appear to have more specifics on it than I do; I'm not the compliance officer. But I very much doubt that the IRS will allow you to choose.

[DAW]

This is maybe complicated. The default is that all educational expenses are fully taxable wages. There are two legal exceptions. One iw Work Related Educational expenses, and the other is Educatinoal Assistance Program. The related IRC code references are 129 and 132 (I am not sure which is which). I have handled this for some pretty big employers and we basically had to look at ALL eductional expenses in detail, and see which exception (if any) was applicable.
- All employers are subject to the Work Related Educational Expense. If applicable, this is the best exception. No dollar limits, no plan requirement, but seriously restrictive job related requirements. Mainly the employer has a hard business requirement (that IRS actually agrees with) that the employer needs this class/training to do their current job. You can NEVER justify a degree with this method (per IRS) but individual classes, maybe so. Example. Lets say that I am currently the Payroll Manager. I can legally classify any class designed to help me do my current job under this method, but I cannot use this method to get an MBA or to train for a different job. But I could maybe justify MBA level classes if they otherwise meet the requirements. There is a hard accountable plan requirement (exact reimbursement of documented expenses).
- If the expense does not qualify for the above exception, then and only then we look at Educational Assistance Program. EAP is an optional benefit program, which employers are not required to have. It has a ton of requirements including a published plan, and non-discrimination requirements. This is the program with the $5,250 annual limit. It is not restricted to current job only, or even any job. It does have the accountable plan requirement. HR generally has to actively manage these plans, since there are a bunch of rules. Also, my understanding is that some of the EAP rules expired in 2013, sort of Congress not paying attention because of the fiscal cliffs as opposed to an actual decision being made by someone, so there is a real chance that in a month or so these traditional rules might start unraveling. Not all companys have an EAP, and these plans do not magically install themselves.
- Any educational expense which fails these two exceptions is fully taxable wages. From an accounting standpoint, while these are all equally educational expenses, they have different IRC (and DOL) requirements associated with them. I am not saying that it most be handled this way, but in my experience, HR managed the EAP (just like any other benefit plan) and Accounting was somewhat more involved in the Work Related since that was vastly more likely to draw IRS audit attention. Past that, all educational expense without exception is fully subject to the accountable plan rules.

[Tom58]

Thank you for taking the time to write such a detailed response.

In terms of the Education Assistance Program, how is the 5,250 limited counted? When the cost incurred (the year in which the semester started and ended), or the year when the reimbursement took place? The employer is verifying transcripts before any reimbursement is made.

Thank you

[DAW]

I have always heard that this was cash basis, like the rest of payroll. On the other hand, CBG (who gave a different answer) may be correct. I would be interested in seeing something definative by IRS. I just re-read Pub 15B and IRC 127, and it seems to be leaning towards when the payment was made. On the other hand, IRS could have made a more definative statement. And maybe they have (somewhere).