Back-to-school refrains are in the air, making it a great time to think about how you can help your staff get the education and training they need to improve and be better employees. In deciding how you want to help employees with education, keep in mind that there are some ways that are tax free to employees and do not entail any employment taxes (FICA, FUTA, or state unemployment tax). As a reminder, consult your tax advisor and/or attorney for specific guidance and questions.
Pay for work related courses
You can pay for the cost of any education and training that is work related. This benefit is fully tax deductible by the company and tax free to employees as a “working condition fringe benefit.” A working condition fringe benefit is a payment that if, made by the employee, would be personally deductible by him or her. In the case of education, it's deductible as long as it maintains or improves job skills and does not lead to a new trade or business.
For more information, see IRS Publication 15-B, Employer's Tax Guide to Fringe Benefits.
Pay for education
You can create an education assistance plan to help employees in a more limited way. This plan can reimburse employees for their education costs, whether or not job-related. Tax-free reimbursement is capped at $5,250 per year per employee. The payments can be used for tuition and fees, as well as for books, equipment, and supplies. If reimbursements exceed this dollar limit, the additional amounts are treated as taxable wages unless they qualify as a working condition fringe benefit explained earlier. Again, amounts paid by the company are fully deductible.
Caution: The plan cannot favor highly-compensated employees and can't provide more than 5% of its benefits annually for shareholders and owners. For more information, see IRS Publication 15-B.
Reward graduates
Even if you don't pay for any part of an employee's education, you can take note of the accomplishment by giving the graduate a promotion and a raise if appropriate. Rewards of this nature can be motivational.
From an employer perspective, rewarding an employee who achieves a higher education level is a way to retain him/her with the company. Without tangible recognition in the form of a higher pay grade, the employee may seek employment elsewhere where compensation reflects the person's education.
Provide on-site training
A higher education degree may not be what's needed by workers in your company. Job training to keep up with technology, learn sales techniques, or improve safety at the workplace is beneficial to employees and your business. Job training helps your staff adapt to changes in the workplace, operate more safely and efficiently, and achieve increased job satisfaction.
Today, on-site training can be done through online courses or bringing trainers in-house. The cost of this training is fully tax deductible by your company. For more about this, read 8 Tips for Training Your Small Business Employees on a Budget.
Help with student loans
The Wall Street Journal reported* that a number of employers are now helping employees pay off their student loans. Currently, this type of compensation is taxable to employees and subject to employment taxes. However, the Employer Participation in Student Loan Repayment Act (H.R. 3861) (and a companion bill in the Senate under S. 2457), which is pending in Congress, would create an exclusion from gross income for employer repayments of student loans for workers. The bill does not contain any dollar limit on the amount that can be repaid tax free.
Currently, employees that receive reimbursement and are taxed on it can deduct their student loan interest up to $2,500. However, if the measure is enacted, employees who enjoy this repayment benefit would not get a double benefit; they could not deduct the interest on the loans repaid by employers.
Conclusion
Former Secretary General of the U.N., Kofi Annan, said “Education is the premise of progress.” If you want progress in your business, consider supporting the education of your employees. In doing so, be cognizant of the tax implications to you and your staff.
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