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What is it?

What is it?. A plan that pays or reimburses employees for expenses incurred in: Education that improves job-related skills Non-job related educational programs Education for children or dependents of employees. Advantages. Employers benefit when employees gain skills through education

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What is it?

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  1. What is it? A plan that pays or reimburses employees for expenses incurred in: • Education that improves job-related skills • Non-job related educational programs • Education for children or dependents of employees

  2. Advantages • Employers benefit when employees gain skills through education • Properly structured job-related educational benefits are not taxable income to employees

  3. Disadvantages • Broad program may simply train employee for job with another employer • Educational benefits beyond certain limits are taxable as compensation to the employee

  4. Tax Implications • Individual can deduct job-related educational expenses IF education: • Maintains or improves skill required in individual’s employment • Is expressly required by individual’s employer as condition of keeping the individual's job Other types of education are not deductible

  5. Tax Implications • Travel expenses not deductible as job-related educational expenses • Employer reimbursements to employees for job-related educational expenses are deductible by employer as compensation • Plan can be designed in such a way that it is tax- free

  6. Tax Implications • Tax benefits exist for those incurring educational expenses: • Itemize deduction as employee business expense • Tuition and fees at eligible post-secondary education institution are deductible even if do not itemize • Hope Scholarship and Lifetime Learning tax credits

  7. Tax Implications • IRS sets specific criteria for “qualified educational assistance plans”; currently, broad range of educational reimbursements allowed on tax-free basis • Employer reimbursements for education of employee’s children or dependents are: • Taxable income to employee • Deductible as compensation by employer

  8. ERISA Requirements Educational assistance plans may be considered welfare plans under ERISA: • Written plan • Written claims procedure • Summary plan description furnished to employees Funded plans face additional rules

  9. How to Install a Plan • Write plan • Draft and distribute Summary Plan Document in accord with ERISA requirements • No government approval required

  10. Discussion Question How is an “educational benefit trust” used?

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