Why is there a tax on employer paid education?

[sethmachine]

From the IRS website (https://www.irs.gov/uac/Tax-Benefits...ation-Center):

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

My employer does offer tuition reimbursement, which counts as an educational benefit, even though as the employee I first have to pay the tuition in full up front, and then get reimbursed upon successful and satisfactory completion of the courses. For a private university, that's typically $10K a semester. That means I'll then have to pay tax on about $5,000 ($10,000 a year counting 2 semesters per year), plus all the interest / opportunity I lost with that $10K I could have invested. In addition, there's also a massive time investment (full time work, plus half or full time enrollment).

My second issue is why employer paid tuition counts as a taxable benefit, but receiving scholarships from other entities does not. Does the government have an issue with getting free higher education that's provided by a corporate entity through employment? And wouldn't making employer education benefits untaxable encourage higher education, i.e. would not the government want to promote its citizens getting advanced degrees?

[sv2007]

Can't comment much on why the laws (i.e. IRS tax rules) are a certain way; a lot has to do with lobbying efforts of the different groups. One thought is that the company-paid reimbursement got viewed as a company benefit to employees because not all companies have them.

As for time, some companies that I've worked at allow you to take time off to attend the classes. So they'll even cover the class time (which is normally during work hours anyway).

Can you turn those classes into required job training? As for the degree, which most co. won't cover, enroll separately under tuition reimbursement program. So the co will pay fully all your classes and you don't have to pay any tax; then take a few as reimbursement for the degree (and transferring the training credits of course).

[cooliemae]

I would imagine that it's a matter of the source of the income. The college reimbursement would be considered income because it's like a bonus from the company. If the company paid the university directly on your behalf, the income might not be taxable.

Crazy rules, but that's my take on it. Be glad you work for a company that values education like that. I would be more than happy to pay say $0.30 (i.e. taxes) on the dollar for another degree.

[moneybags]

The corporation is taking the expense as a tax deduction. Someone has to pay tax on it. Like the prior poster said, it is like a bonus.

[Gailete]

Nice to get that benefit. I remember when I worked as a nurse, I got some in service training, but anything that was more than that was a no go. I even went to conference/training on my own nickel and pretty much all the company did was allow the time off - yippy.