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Publication 970 2001 Tax Year

Chapter 7
Employer-Provided Educational Assistance


Introduction

Your employer may be able to provide you, tax free, up to $5,250 of education benefits each year. This means that you may not have to pay tax on amounts your employer pays for your education including payments for tuition, fees and similar expenses, books, supplies, and equipment. The payments do not have to be for work-related courses.

Your employer will be able to tell you whether the benefits are tax free.

Caution: You cannot use any of the tax-free education expenses paid for by your employer as the basis for any other deduction or credit, including the Hope credit and the lifetime learning credit.

Education benefits. Education benefits that your employer can provide tax free include payments for tuition, fees and similar expenses, books, supplies, and equipment. For 2001, the payments must be for undergraduate-level courses that begin before January 1, 2002. The payments do not have to be for work-related courses.

Educational assistance benefits do not include payments for the following items.

  1. Meals, lodging, transportation, or tools or supplies (other than textbooks) that you can keep after completing the course of instruction.
  2. Courses involving sports, games, or hobbies unless they:
    1. Have a reasonable relationship to the business of your employer, or
    2. Are required as part of a degree program.
  3. For 2001, graduate-level courses normally taken under a program leading to a law, business, medical, or other advanced academic or professional degree.

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

Working condition fringe benefit. However, if the payments also qualify as a working condition fringe benefit, your employer does not have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in chapter 2 of Publication 15-B, Employer's Tax Guide to Fringe Benefits.

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