Never Too Late to Learn: Adopting Employee Tuition Reimbursement Programs

Educational assistance programs are a common tax-favorable employee benefit offered by employers. Statutory requirements under I.R.C. § 127 permit a great deal of flexibility in program design. This includes the ability to restrict assistance only to coursework that is likely to improve a participant's skills, knowledge, or credentials that relate to their role or anticipated roles within the sponsoring company, or to offer assistance for a broader range of educational opportunities, in any form of instruction or training that improves or develops the capabilities of an individual or even one that leads to a degree.

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• Fringe Benefit Rules (IRC § 132)
  Explore the types of fringe benefits an employer can provide to its employees that often are not taxable to the employee or are taxed below their fair market value (e.g., subsidized cafeteria meals). Employers can, and often do, provide employees with free education or training, and don’t need a tuition reimbursement plan to do that. Rules under Treas. Reg. § 1.162-5 allow for more generous tax-favored benefits than Section 127 programs (e.g., there is not a $5,250 cap as with Section 127 programs), but the type of instruction must maintain or improve skills required in the employee's trade or business. 

DID YOU KNOW? Your client’s 401(k) plans that have a true-up feature can allow an employee who missed part of a matching contribution (by not saving enough, usually earlier in the year) to catch-up by contributing more than the employer cap on the matching percentage later in the year? See True-up Clause for 401(k) Plan (Matching Contributions).

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  • IRS issues the 2023 Form 5500 series, including Form 5500, Form 5500-SF, Form 5500-EZ, schedules, and Instructions. Key revisions for 2023 reflect SECURE Act provisions like: (1) new Schedule DCG for defined contribution group reporting entities; (2) new Schedule MEP for multiple employer retirement plan information; (3) changes to how defined contribution plan participants are counted for small plan reporting purposes; and (4) new compliance questions for tax-qualified retirement plans.IRS Form 5500 Corner; EBSA Fact Sheet.
  • Retirement Plans. IRS issues Publication 794, Favorable Determination Letter, explaining the significance of a favorable determination letter, pointing out some features that may affect the tax status of an employee retirement plan and nullify the determination letter without advance IRS notice, and providing general information on the reporting requirements for a qualified retirement plan. Publication 794.

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