529 and company tuition reimbursement

[Peloton115]

Hi - in 2021 tuition was 30k. 
1. employer assistance of 10k ($5250 tax free) received. 

2. 529 withdrawal amount to be determined 

Q. In order to avoid double dipping do I take 30k-10k? 

or 30k - 5250 tax free portion? 

Thank you in advance

[Hal_Al · Accepted solution]

Q.  Employer assistance of 10k ($5250 tax free). In order to avoid double dipping do I take 30k-10k or 30k - 5250 tax portion? 

A.  Simple answer: $24,750 (30k - 5250 tax free portion). The other $4750 is taxable income to you.  As such, it is treated as  wages, for tax purposes, not reimbursement.

But, if you are going also  to claim a tuition credit or deduction, you need to adjust for that too. For example, if you want to claim the maximum American Opportunity Credit* (the most generous credit), you will need $4000 of qualifying expenses.  So, you would only take a $20,750 distribution from the 529 plan (30,000 - 5250 - 4000 = $20750). 

*Graduate school is not eligible for the American Opportunity Credit.  You would want to claim the Lifetime Learning Credit (LLC).  It takes $10K of expenses for the maximum LLC.  You would only withdraw  $14,750 from your 529 (30K - 10K - $5250 = 14,750).

[Peloton115]

Thank you so much for clear answer!!

will look into LLC as I was not aware of the program. Went to graduate school (2006-2010). So looks like I can file for 2009 and 2010 given I can find paper trails. 

[Hal_Al]

There's a three year limit for claiming a tax refund.  So, it's too late to amend your 2009 and 2010 returns to claim an education credit. 

[Peloton115]

Thank you - Noted!