Why Stop at $5,250?
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There is nothing strategic about the number $5,250. So, why then do companies offer this amount as the maximum tuition assistance allotment for its employees just because it’s the IRS imposed limit? Much has been written about the "tax benefit" with the passage of the Economic Growth Tax Relief and Reconciliation Act of 2002 that gave us this magic number. However, according to the IRS, there are no tax breaks or business tax credits for educational assistance and there is nothing special about $5,250.
Anything above $5,250 is taxable to the employees, but knowing this, can’t the individuals make the decision as to whether or not they want to spend more than $5,250 a year on education? In terms of tuition assistance budgets causing additional tax implications for the company, anything above $5,250 is taxable to the employer only in terms of 7.65 percent in payroll taxes. Is 7.65 percent significant enough to cap the tuition? During a recent study conducted by the Human Capital Lab and CAEL, looking at CAEL’s database of 73 tuition assistance policies, 32 percent of the policies examined did cap its tuition assistance at $5,250.
Whether your tuition assistance level is set at $2,000, $5,250 or $10,000, or whether you have different amounts for undergraduate and graduate degrees, we encourage you to dig deeper and analyze your policies and dollar amounts to see if the money you are spending is doing what you think it is. You may find out you’re spending too little, too much or just the right amount to develop your employees and achieve strategic outcomes for your organization. Tuition assistance does not have to be just a human resource benefit mindset. Use your tuition assistance to your advantage and determine what you want to affect with your organization’s tuition assistance policy—then make it strategic. Whether it’s as a recruiting aid or retention instrument in the organization, what is the right dollar amount to spend on tuition assistance in order to help the organization accomplish its strategic goals? Your organization should evaluate its investment in the tuition assistance allotment on its own merit, not one tied to a discretionary IRS amount.
Anything above $5,250 is taxable to the employees, but knowing this, can’t the individuals make the decision as to whether or not they want to spend more than $5,250 a year on education? In terms of tuition assistance budgets causing additional tax implications for the company, anything above $5,250 is taxable to the employer only in terms of 7.65 percent in payroll taxes. Is 7.65 percent significant enough to cap the tuition? During a recent study conducted by the Human Capital Lab and CAEL, looking at CAEL’s database of 73 tuition assistance policies, 32 percent of the policies examined did cap its tuition assistance at $5,250.
Whether your tuition assistance level is set at $2,000, $5,250 or $10,000, or whether you have different amounts for undergraduate and graduate degrees, we encourage you to dig deeper and analyze your policies and dollar amounts to see if the money you are spending is doing what you think it is. You may find out you’re spending too little, too much or just the right amount to develop your employees and achieve strategic outcomes for your organization. Tuition assistance does not have to be just a human resource benefit mindset. Use your tuition assistance to your advantage and determine what you want to affect with your organization’s tuition assistance policy—then make it strategic. Whether it’s as a recruiting aid or retention instrument in the organization, what is the right dollar amount to spend on tuition assistance in order to help the organization accomplish its strategic goals? Your organization should evaluate its investment in the tuition assistance allotment on its own merit, not one tied to a discretionary IRS amount.
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Jennifer Murnane
Economic Growth Tax Relief and Reconciliation Act
tuition assistance
taxes
Bellevue University
learning
