How To Give Top Employees A Raise For Education Assistance

education assistance


Erica HaywoodEducation assistance is a great way to reward employees who excel in your business. In fact, it’s exactly what we did with Erica at Paragon. We love it because the government will let you write off your educational expenses in full. You can write off the costs of certain advanced degrees, such as an MBA, language courses, classes on computer skills, seminars in your industry and any form of education that helps you improve your business skills. Paragon has been using this program for the past three years already. Erica started off in bookkeeping but has since earned her accounting degree with this program. In December 2017, she finished her master’s degree. Here is how we put it into action:

1. Document & plan your education assistance program.

Don’t just assume that the IRS won’t want to see your plan. Rather, have it prepared long before you start the education assistance program.

2. Develop a clear reimbursement period.

This makes it clear to your employee and the government as to how long the education assistance period will be.

3. Eligibility requirements must be stipulated and met.

This protects you as the employer and it protects your employee from expectations.

4. Use the money you would assign to an increase for education assistance program.

When you increase the salary of your employee, the amount of income tax also increases. So, a $5000 salary increase would become much less after taxes for use in education. Also, you as the employer will also have an increase in payout for employment tax. If your employee is in the 25% federal and 6% state income tax bracket (deductibility for state income taxes may vary by state), they would save $1,628 each year in income taxes as compared to $5,250 of salary. Thus, by using education assistance, the employer can provide a smaller amount of wage + assistance than wage-alone to meet the same “cash” income to the employee.

5. Education Assistance Program does not require an employee to pay tax on the assistance amount.

Unlike paying the employee an increase in salary, the employee does not pay income tax on the assistance. An employee in the 25% federal and 6% state income tax bracket would save $1,628 each year in income taxes and that can be split with the employer via a lower wage. In addition, you’ll both save an additional $400 per year in employment taxes. It’s a win-win!

6. In your small business, spouses and children may be eligible.

However, there are some special criteria to adhere to. But, grandchildren are treated the same as other employees.

As you can see, we practice what we preach when it comes to making the most of our tax saving opportunities. Here at Paragon Accounting & Tax Solutions, located in Woodstock, GA, we specialize in tax preparation for small businesses. Our CPA firm can help you plan for tax deductions, manage payroll and deal with all your monthly accounting needs.