My employer offered to pay for my MBA, via a bonus after I finish school. I must pay all tuition upfront. My employer says the bonus will be tax free - is that right?

[max361]

Background:
• I am working towards completing an MBA program
• My employer has offered to reimburse me for tuition in the following manner:
o I pay the entire tuition upfront
o And my employer will reimburse me via a bonus once I complete the program.
• Will this bonus be treated as tax free (my employer believes this to be the case)
• If not: what would have to be done for me to get a tax free reimbursement from my employer for tuition expenses.

[rjs]

Your employer's payment for your tuition can be tax free, provided that all of the following conditions are met.

• All of the courses maintain or improve skills need in your current job. (Each course is evaluated separately. It is not sufficient that the degree is job-related.)
• The education is not needed to meet the minimum requirements for your current job.
• The education does not qualify you for a new trade, business, or profession.

If all these conditions are met, the tuition payment is considered a "working condition fringe benefit" and is tax free. It should not appear on your W-2 at all. It's not a bonus, and should not be called a bonus. A bonus would be taxable income.

[Hal_Al]

Employers are allowed to reimburse employees, for tuition, up to $5250, per year, tax free. Anything over that is taxable and included as taxable income on your W-2. So, if your employer waits until the end, then only $5250 of the  total tuition will be tax free.

Assuming the MBA program is multi-year, it would be better if he reimbursed you each year.  That way, $5250 each year is tax free.

But, as the other answer indicates, if you employer treats the money as business expense reimbursement, rather than tuition reimbursement, it can all be tax free. But, certain conditions (described in the other answer) must be met to call it business expenses. 

For a discussion on claiming the tuition credit, see https://ttlc.intuit.com/questions/4521474-can-i-claim-my-mba-as-an-expense-if-my-employer-is-providi...   In general, you may not claim a tuition credit if you are reimbursed with tax free money.

[rjs]

The $5,250 maximum tuition reimbursement from an employer's educational assistance plan can be used for any courses. The courses do not have to be job-related. An educational assistance plan is also called a Section 127 plan. The educational assistance plan and the working condition benefit are two completely separate programs, and they each have different rules.

[djvargo3]

What if the employer includes the tuition reimbursement as income on my W-2 because they disagree with me that "the education does not qualify me for a new trade, business, or profession"? Even though company policy clearly states that earning a degree does not automatically qualify me for a promotion. Is there any way for me to deduct the reimbursement on my return? 

[Hal_Al]

Despite the June 7, 2019 date on the original post, this is an older post (2017 or earlier tax year) and the answer(s) are not valid for tax years 2018 thru 2025.  In particular, employee  job expenses are no longer deductible. This means the employer cannot reimburse you tax free, even if the education does "does not qualify me for a new trade, business, or profession".

So, there is no way for you to deduct the reimbursement.  You employer can treat $5250 as tax free tuition reimbursement (not a business expense), but he must do so by not including the reimbursement in box 1 of your W-2. Once it shows on your W-2, as taxable income, you cannot deduct it.

But, since you will have paid the tuition with after tax money, you may claim the tuition credit (Lifetime Learning credit), based on what you paid.  The maximum credit is $2000 (20% of the maximum $10,000 tuition and fees) per year paid.

[YbenDevis]

That sounds like a great opportunity, but the tax implications can be a bit tricky. Whether the bonus is tax-free or not depends on your country's tax laws, and they can vary quite a bit.

[CarolineMay123]

It's essential to consult with a tax professional or accountant who's familiar with your local regulations to get the most accurate advice.As for pursuing an MBA, it's a significant step in your career, and I can understand why you're contemplating it, especially when friends are considering it too. It's not just about the degree but also the knowledge and network you gain during the program. Plus, with the rise of remote work, you might want to explore options for remote work degrees . This can be a fantastic way to advance your career while maintaining flexibility and not having to take time off work.