Why am I being taxed on my tuition reimbursement?

Question

In 2007, I participated in the tutition reimbuirsement plan at my job. I recieved 4k in non-taxable tuition reimbusement. Why are they taxing me for this years tuition reimbursement? When I emailed them, they just stated that all courses are beign taxed now regardless of school or level (UG vs Grad).

Whats going on? Is this legal in reference to the IRS? I thought I wasnt to be taxed until I recieved more than $5200.

And how am I going to report this on my taxes? Will I get this money back?

Answer 1

The Tuition rembursement is a benefit to you.  Other benefits can also be taxable - like having a company car.

Your employer should report the tuition reimbursement on your W-2.  You would also then be able to deduct the tuition as a tax credit or as a tax deduction.

Answer 2

Your company changed their policy.  They used to give you a tax-free education benefit.  They now will pay you additional taxable compensation as reimbursement for tuition you paid.

This change is legal as far as the IRS is concerned.  There is no requirement that your employer provide you with a tax-free educational benefit.  

How to report:  On your W-2 for 2008, the reimbursements you receive will be included in Box 1 as taxable compensation.  You will then be able to use any available education benefit, such as the Hope Credit, Lifetime Learning Credit, Tuition and Fees Deduction, or Unreimbursed Employee Expenses.

From your description, you already got your money back.  The difference is, last year it was tax-free, you did not report it on your tax return, and you took no deduction.  

This year, it is taxable compensation subject to income tax and payroll tax.     You may be able to take a deduction or get a credit for it.

Answer 3

In order for the money to be pre-tax, the company must have a valid plan, keep records, verify that courses count, pass muster with the IRS, etc.  Your company has decided they don't want that level of hassle.

So...the money is now post-tax and eligible for you to take a tuition deduction or lifetime learning credit when you file.