Employer-provided Assistance

Your employer may be able to provide you with up to $5,250 of tax-free education benefits each year. The payments do not have to be for work-related courses. Education benefits that your employer can provide tax-free include payments for tuition, fees and similar expenses, books, supplies, and equipment.

Educational assistance benefits do not include payments for the following.

  • Meals, lodging, transportation, tools, or supplies (other than textbooks) that you can keep after completing the course of instruction.
  • Courses involving sports, games, or hobbies, unless they have a reasonable relationship to the business of your employer, or are required as part of a degree program.

If your employer pays for more than $5,250 of education benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (box 1 of your Form W-2) the amount which you must include in income.

Check with the human resources department where you work to see whether they offer such assistance and what, if any, restrictions they place on the aid. In some cases, the employer must review each course to determine whether it is work-related. In other cases, the employer will only reimburse students if they achieve a specified grade level in a course. This is a valuable benefit offered by a growing number of employers.

Lifetime Learning and Hope Tax Credits

The Lifetime Learning Tax Credit allows eligible taxpayers to claim a nonrefundable Lifetime Learning Credit against their federal income taxes. The Lifetime Learning Credit may be claimed for the qualified tuition and related expenses of the students in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent) who are enrolled in eligible educational institutions. The credit amount is equal to 20 percent of the taxpayer's first $10,000 of out-of-pocket qualified tuition and related expenses. Thus, the maximum credit a taxpayer may claim for a taxable year is $2,000. These amounts are not indexed for inflation.

The Hope Tax Credit allows an eligible taxpayer to claim a nonrefundable Hope Scholarship Credit against their federal income taxes. The Hope Scholarship Credit may be claimed for the qualified tuition and related expenses of each student in the taxpayer's family (i.e., the taxpayer, the taxpayer's spouse, or an eligible dependent) who is enrolled at least half-time in one of the first two years of postsecondary education and who is enrolled in a program leading to a degree, certificate, or other recognized educational credential. The amount that may be claimed as a credit is generally equal to: (1) 100 percent of the first $1,000 of the taxpayer's out-of-pocket expenses for each student's qualified tuition and related expenses, plus (2) 50 percent of the next $1,000 of the taxpayer's out-of-pocket expenses for each student's qualified tuition and related expenses. Thus, the maximum credit a taxpayer may claim for a taxable year is $1,500 multiplied by the number of students in the family who meet the enrollment criteria described above.

Penalty-free IRA Withdrawals
It is possible to withdraw from your IRA and use those funds to pay for education expenses. You must pay taxes on this income, but you are not subject to penalties for the early withdrawal.

Trade Act Programs
If you work for a company that is forced to consider laying off employees or has laid off employees due to an increase in imports or shifts in production to Canada or Mexico, you may be eligible for a variety of reemployment services and assistance through the Trade Act programs.

Union Programs
You may be able to take advantage of scholarships, grants, or tuition benefit programs if you belong to a union. For more information, visit the AFL-CIO Web site.

Workforce Investment Act
Over 50 employment, training, and literacy programs are funded through the Workforce Investment Act. These include job training programs and programs that support low-income adults and displaced workers.

Vocational Rehabilitation Services
This bureau provides quality, individualized services to support people with disabilities in preparing for or retaining employment. To find out more about the services offered visit the Indiana Family and Social Services Vocational Rehabilitation Services Web site.