Education Reimbursements Can Save Money For You and Your Employee

Support your household employee in obtaining college accredited professional training by offering an employer sponsored Educational Assistance Program (EAP). Offering this benefit reduces taxes for everyone, strengthens your compensation package and makes employees feel valued.

EAPs enable you to transfer tax free income to your employees by reimbursing their tuition and educational expenses (fees, books, supplies etc.). The reimbursements are tax-free to both you and your employee, so you don’t pay your typical 10% employer tax and your employee doesn’t pay their typical 15%+ employee taxes.

How they work

Under IRS Code Section 127, an employee may exclude from income up to $5,250 received pursuant to an EAP as reimbursement for qualifying educational expenses. See also IRS Publication Publication 15-B. The amount you reimburse, up to the non-taxable limit of $5,250, will not be reported on the employee’s W-2 nor on your employer Schedule H.

What’s required

As an employer, you need to provide a written plan that specifies how much the plan will offer, when an employee becomes eligible, and a few other key elements. It’s not complicated and we can provide you with a sample template (send us an email to support@nestpayroll.com). You can also simply include these provisions in your employment contract.

With the Nest Payroll app, you can easily reimburse your employees for their educational expenses, tax-free, when they provide you with a receipt.

Reach out to us if you have any questions about this or other strategies to reduce taxes.