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Education
I think you son is correct. The education was paid for. That is, it wasn't a tax free scholarship. Where the money came from is not relevant, unless the employer plan has some specific rule. For example, I was ineligible for my employer's plan because I was collecting Veteran education benefits.
Whether your son got the money as gift or loan form his parents should not matter to the employer. Furthermore, if your son is the beneficiary of your* 529 plan, that money is considered his as well as yours.
It sounds like all the employer is requiring is a receipt that the tuition was paid. There's nothing unethical here. It's your son's or his family's money.
*For 529 plans, there is an “owner” (usually the parent), and a “beneficiary” (usually the student, who may or may not be the parent's dependent). The "recipient" of the distribution can be either the owner or the beneficiary depending on who the money was sent to. When the money goes directly from the Qualified Tuition Plan (QTP) to the school, the student is the "recipient". The distribution will be reported on IRS form 1099-Q.
The 1099-Q gets reported on the recipient's return.** The recipient's name & SS# will be on the 1099-Q.
**Alternatively; you can just not report the 1099-Q, at all, if your student-beneficiary has sufficient educational expenses, including room & board (even if he lives at home) to cover the distribution.
In the case where a student receives both a tax free employer reimbursement and a 529 plan distribution for the SAME expenses, tax will have to be paid on one of those sources (usually the 529 plan)