You can exclude up to $5,250 of educational assistance benefits you received from your employer. To qualify for the exclusion, the benefits must be part of a written educational assistance program. Your employer can tell you whether your benefits are part of a qualified program. These excluded benefits are not included in wages in Box 1 of your Form W-2.
Qualifying assistance can include payments for:
- Fees, and
- Expenses for books, supplies, and equipment.
Payments you receive do not need to be for work-related courses and do not need to be part of a degree program.
Payments for the following items do not qualify and cannot be excluded from income:
- Meals, lodging, or transportation.
- Tools or supplies (other than textbooks) that you can keep after completing the course.
- Courses involving sports, games, or hobbies (unless they have a reasonable relationship to your business or are required as part of a degree program).
You must generally pay tax on any educational assistance benefits over $5,250. These amounts should be included in your wages in Box 1 of Form W-2. However, if the payments over $5,250 qualify as a fringe benefit, your employer does not need to include them in your wages. A fringe benefit is a benefit you could deduct as an employee business expense had you paid for it.
Note that the educational assistance exclusion is different from the business deduction for work-related education. See pages 64-65 of IRS Publication 970 for more information on the exclusion and business deduction.