Over the last couple of months, I have been taking grad courses that quite suddenly became necessary for my job (long and somewhat ridiculous story as to why). Anyway, my employer has agreed to reimburse me for six of these courses (which I will complete by December 2016). I then will likely foot the bill for the remaining 2-5 classes necessary to complete the degree. So I just want to make sure the following is correct. I am not trying to skirt any tax law at all, but am merely trying to minimize my payout. For the sake of easier calculations, we will say each course costs $3000.
-I initially pay for all classes out of pocket with after tax money I have already earned. After successful completion of the course, I apply for reimbursement of the tuition. -As I understand it, I can get $5000 reimbursed tax free from the employer per calendar year. Anything above this $5000 would then be subject to taxes. However,.... -I then can take the Lifetime Learning Credit on up to $10000 per calendar year, which gives me 20% back. -I would then be eligible to repeat this process in 2017 (and 2018, though without the reimbursed part).
I think my assumptions above are correct, but here is my main question: if I receive reimbursement in 2017 for educational expenses incurred in 2016, can I count that toward 2017 taxes? In other words... -Receive $12000 in 2016 for summer class reimbursement. $5000 is untaxed, $7000 is taxed, but I can claim the LLC on all $7000. -Receive $6000 in 2017 for Fall 2016 class reimbursement, $5000 is untaxed and $1000 goes toward LLC (I then likely take up the rest of the LLC with my out of pocket expenses). -Any classes remaining in 2018 could use the LLC again, or possibly even the deduction (I forget the name), as I may be under the $4000 limit for that.
The main problem is that, if I have to claim everything in 2016, I end up paying taxes on $18000 - 5000 - 10000 = $3000. There is zero chance I will see the reimbursed money for the courses I finish in December in 2016.
Of course, this also hinges on my HR department processing the tax free reimbursement correctly, but I am going to try to educate them prior to this going down so that I don't have to address it after the fact (which I know is usually harder).
stanolshefski said: First, the LLC applies to the tax year you paid the expense. Correct, and good observation. I'm not sure I was considering the tax form I would be sent by the university. I will factor that in to an update post once I figure out the answer to the question about the 2017 reimbursement.
DoctorDeals said: Over the last couple of months, I have been taking grad courses that quite suddenly became necessary for my jobNot sure if this helps, but you should look into it anyway, just in case... Pub 970: IRS said: Benefits over $5,250. If your employer pays more than $5,250 in educational assistance benefits for you during the year, you must generally pay tax on the amount over $5,250. Your employer should include in your wages (Form W-2, box 1) the amount that you must include in income.
Working condition fringe benefit. However, if the benefits over $5,250 also qualify as a working condition fringe benefit, your employer doesn't 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 Pub. 15-B, Employer's Tax Guide to Fringe Benefits.Pub. 15-B Educational Assistance Pub. 15-B Working Condition Benefits
"-As I understand it, I can get $5000 reimbursed tax free from the employer per calendar year. Anything above this $5000 would then be subject to taxes. However,.... -I then can take the Lifetime Learning Credit on up to $10000 per calendar year, which gives me 20% back."
Nope. No credit for portion that's reimbursed on tax-free basis. Depending on timing, you have to reduce the qualified expenses or treat as a refund and recapture the credit. Study the IRS publication.
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