Employer Tuition Assistance Program / Employee Tuition Reimbursement - Finance

Overview

Employer Tuition Assistance Programs offer the opportunity to develop a contractual arrangement between an employer and employee in which the employer covers the costs toward some or all of an employee’s tuition for a program of study such as a college or university degree, or other forms of education. Reimbursement programs are becoming increasingly common: 47% of employers offered tuition assistance in 2020, according to the Society for Human Resource Management (SHRM).

Tuition assistance programs are viewed as a win-win strategy for both employers and employees, and are categorized as an employee benefit. Employers use tuition assistance programs as an employee retention tool (to build employee loyalty and longevity) and recruiting tool (to help attract employees interested in learning and growth). Employees use tuition assistance programs as a form of student financial aid.

These tuition assistance programs are supported by federal tax policies. Federal tax laws allow employees to receive up to $5,250 in tuition reimbursement tax-free annually from their employer. Tax-free education assistance is intended for the employee only and not their spouse or dependents.

Employer-paid tuition assistance is considered a form of financial aid by colleges and must be reported on the Free Application for Federal Student Aid (FAFSA). The amount of tuition assistance received is added to the student’s Student Aid Index (SAI) and reduces the amount of need-based financial aid the student is eligible to receive.  Employer-paid educational assistance is not, however, reported on the FAFSA.

Most employers cap the amount of tuition assistance available for their employees. Limits are typically set in terms of dollars available per employee per year, or the number of classes the employer will pay for per year per employee through tuition assistance.

Tuition assistance is often negotiated in the employee’s employment contract. Many companies offer tuition assistance above what other employees receive in their company in order to attract needed talent. In cases, where extensive funds are spent on tuition assistance (for example, an employer will provide funds to cover the cost of earning an MBA, which can cost $100,000), the employer requires employees to sign an agreement to pay back the tuition assistance if they leave the company within a certain period of time. In such cases, the employer usually forgives a percentage of the tuition assistance for each year the employee remains with the company.

Federal Issues: Taxes, FAFSA

Employers can reimburse their employees up to $5,250 annually through Employer Tuition Assistance Programs without this amount being taxed.  Employers can offer more through their assistance programs but any amount above the permitted federal level is viewed as a fringe benefit and subject to taxes.

Tax-free employer tuition assistance must be used toward an employee’s education. This includes undergraduate and graduate courses, and continuing education. For tuition reimbursement to be stay tax-free, the funds can only be used for tuition, fees, and school supplies such as books. Graduate level courses are tax-exempt only if the employee is in a research or work-study position. Eligible courses are not required to be part of a degree or certificate program, and students do not have to be enrolled full-time.

The CARES Act of 2020 also expands the tax-free treatment to include employer payment toward employee student debt. This provision is set to expire on December 31, 2025, unless Congress chooses to extend it.

Common Eligibility Policies

Employer tuition assistance programs vary considerably. Some offer assistance for only full-time employees who have at least six months continuous full-time service. Some limit their tuition assistance to degrees or programs that will benefit the employee's current or next position. Others permit their employees to use their tuition assistance toward any form of education. Some employers will pay all of an employee’s cost to attend college or university classes; others pay a part of the cost. Some employers offer tuition assistance for courses taken in specific fields, and many require the employee to provide evidence of earning a C or above grade upon completion of the course to qualify for reimbursement. An employee may be required to pay back tuition assistance if they earn less than a C or if they resign from the firm within a certain time period.

Eligible expenses typically include tuition and fees, books, supplies and equipment, and student loan repayment. When a class is required by an employer, the employer usually pays the complete cost and often mileage reimbursement. Eligible expenses do not generally include the costs of sports, games or hobbies unless required for a degree program or have a reasonable relationship to the employer’s business; lodging; meals; transportation; computers, tools or other supplies that the employee can keep after the course is over; education costs for an employee’s spouse or dependents; and childcare.

Other Employer Assistance

Many employers offer help with college planning for employees, their children, and their grandchildren. College planning employee benefits include 529 plan selection, payroll deduction for 529 plan contributions, and matching contributions. Matching contributions from an employer are considered taxable income, but some companies help cover the costs of these taxes.

Development of Company Programs 

Employers are responsible for developing their own tuition assistance programs. They develop their own policies, eligibility requirements, program criteria, and other requirements.  The HR department is typically the unit charged with designing, implementing, and monitoring the company's tuition assistance program, although third-party intermediaries are available to provide such services to companies.

HR departments are encouraged by SHRM to consider several factors in designing an educational assistance program:

  • Will this benefit be available to everyone within the company or for only certain employees, such as those who have been with the company for a certain amount of time?
  • Will the company offer another benefit or cash incentive for employees who choose not to participate in a tuition reimbursement program?
  • Are there certain education programs or courses the company will choose to cover?
  • What percentage of employee tuition will the company cover, and when will employees receive reimbursement?
  • What will happen if an employee is laid off or resigns after enrolling in a tuition reimbursement program?
  • Will the company continue to offer the program if federal tax laws change?
  • Is the company planning to retain a lawyer, certified public accountant, or another third-party resource to administer the program?

Common categories in an employer’s program include:

  • Employee tenure. The tuition reimbursement benefit might only be accessible to employees who have been with the company for a certain amount of time (e.g., more than two years).
  • Benefit amount limit. Not all companies offer a full tuition benefit. Some companies reimburse a percentage of the overall tuition costs.
  • Ongoing employment stipulation. A company policy for reimbursement might require the employee to work at the company for a specified time period (e.g. two years) after completing the program.

Examples of Companies with Tuition Assistance Programs

Amazon—Amazon associates who have worked with the company for at least 90 days are eligible for the Amazon Career Choice program. The company prepays 100% of costs associated with school, including tuition, books, and fees. Participants must enroll in a program or course through an Amazon partner institution. Eligible educational opportunities include general education development (GED) and English as a second language (ESL) courses, supplemental job training, as well as associate and bachelor’s degree programs with no lifetime limit.

Boeing—Boeing’s Learning Together Program offers employees up to $25,000 per year in tuition assistance for certain certifications and degree programs. Employees must enroll with a partner school and pursue a strategic field, such as aeronautical studies, business, human resources and manufacturing. This benefit can start on the employee’s first day at Boeing. The company pays the school so the employee does not have to provide funds upfront.

Disney—Full- and part-time Disney employees are eligible for tuition assistance. Disney pays for 100% of employees’ tuition costs for courses and programs through one of its partner institutions. It also provides reimbursements for books and fees. Employees can pursue training in a skilled trade, enroll in a Master’s program, and other programs/courses in between.

Home Depot—Home Depot helps pay for college in tiered amounts each year, depending on whether the employee is salaried or works as a full- or part-time hourly employee. It provides an annual reimbursement benefit of up to $5,000 for salaried workers. Full-time and part-time employees can receive up to $3,000 and $1,500, respectfully. Up to 50% of tuition, book and fee costs can be reimbursed. A variety of degree and technical programs are eligible; however, they must meet policy guidelines and be approved in advance.

Lowe’s—Through its partnership with Guild Education, Lowe’s full-time and part-time associates can earn a college degree in select programs, as well as enroll in certificate and high school courses. Eligible associates receive access to 100% debt-free education programs at more than 20 universities. Lowe’s employees can also receive up to $2,500 to cover tuition fees at 165 additional academic programs.

Publix—Employees who have worked at Publix for 90 days can participate in the company’s tuition reimbursement program. The program pays for college undergraduate programs in certain fields of study, individual courses, and occupational or trade programs. Participants enrolled in an accredited college or university can receive $4,000 in reimbursement per calendar year with a maximum $16,000 lifetime limit.

Qualcomm—Provides full tuition reimbursement for employees working toward an undergraduate or graduate degree. Employees can attend any accredited school; some online courses are also covered.

Starbucks—Provides 100% tuition assistance for tenured part- and full-time employees who are pursuing a bachelor’s degree for the first time. Costs for books or other non-tuition expenses are not covered. The benefit is only offered for Arizona State University’s online programs, though the school offers more than 100 degree programs to choose from.

Target—Offers tuition assistance to part-time and full-time employees. Participants who pursue a specified program within its Debt-Free Education pathway can have 100% of costs covered by the company. Employees can attend one of 40 partner schools and choose from more than 250 degree programs. For employees who choose to enroll in an area of study outside of those offered through Debt-Free Education, Target provides up to $5,250 in upfront assistance per year for non-master’s degrees and up to $10,000 annually for master’s degrees.

Waste Management—Employees who enroll in relevant educational programs through a partner institution can receive tuition assistance. It covers 100% of costs for tuition, books and fees toward a GED, college prep courses and certain undergraduate degree programs. Spouses and dependents can take advantage of this benefit. Employees pursuing a master’s degree can receive up to $12,000 per year toward educational expenses.

References

Calonia, J. (August 2022). Employers That Pay For College Tuition. Forbes Advisor. https://www.forbes.com/advisor/student-loans/jobs-that-pay-for-college/

Heathfield, S. M. (July 2019). Liveaboutdotcom: https://www.liveabout.com/tuition-assistance-1918278#:~:text=Tuition%20assistance%2C%20or%20tuition%20reimbursement%20as%20it%20is,employee%27s%20cost%20to%20attend%20college%20or%20university%20classes.

irs.gov: https://www.irs.gov/newsroom/reminder-educational-assistance-programs-can-help-pay-workers-student-loans

SHRM Toolkit: Designing and Managing Educational Assistance Programs -  https://www.shrm.org/resourcesandtools/tools-and-samples/toolkits/pages/educationalassistanceprograms.aspx

Wingo, L. (December 2921). U.S. Chamber of Commerce - https://www.uschamber.com/co/start/strategy/employee-tuition-reimbursement#What%20Is%20Tuition%20Reimbursement?

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