What is Tuition Reimbursement and How Does it Work?

What is Tuition Reimbursement and How Does it Work?

While many jobs already require some kind of postsecondary education, the demand for college degrees in the workplace is increasing.1 With a consistently higher premium being placed on training and education, many businesses are investing in their employees through professional development initiatives and offerings. As many as 54% of employers also offer some form of tuition assistance in their benefits package for employees who want to go back to school to pursue an advanced degree.2

The most common type of assistance is tuition reimbursement, but what is tuition reimbursement exactly and how do you use it?

How Tuition Reimbursement Works

Every employer's reimbursement program will work differently, so it's important to get all the relevant details from your company's human resources department before you enroll in classes. However, many programs function similarly, and we've outlined common answers to some important questions below.

What Classes Can You Be Reimbursed For?

A common rule is that only "work-related" courses are eligible for reimbursement, but you'll need to check with your employer to verify exactly how they define this. Some employers may approve only specific courses related to your immediate job responsibilities, while others may contribute toward an approved range of relevant degrees. You may also be able to persuade them to cover a new program or course of study that would help you (and the company) better prepare for future challenges.3

Even if you don't think your company offers tuition reimbursement benefits, it can't hurt to ask a supervisor or manager. In some cases tuition assistance may only be issued on an as-approved basis, so you may have to discuss your goals and intended program of study with management or HR before you can apply for reimbursement benefits.

How Much of Your Tuition Will Your Employer Pay?

Your employer will probably have a set amount up to which they're willing to contribute for qualifying classes. According to a report by the Society for Human Resource Management, the average amount of annual tuition reimbursement per employee was $4,591 in 2014, though some employers may offer more or less.2

The actual amount reimbursed per class may vary based on a number of factors. For instance, some employers may agree to cover the entire cost of approved courses, while others may contribute a percentage of enrollment costs based on your final grades in each class. Regardless of how much your employer is willing to cover, you typically must earn a B or higher to qualify for any reimbursement.3,4

When Do You Get Reimbursed?

This is an especially important question if you're trying to consider budgeting for classes in advance each semester. You'll want to check to see if your employer offers direct tuition assistance paid to the school, or if they reimburse you for enrollment costs at a later date. If they make payments directly to your school, you'll need to get your employer (and possibly the school) necessary paperwork before each course starts.

In many cases, your employer may require you to enroll and pay for classes up front, then reimburse you for the approved portion of tuition. Even in these cases, you'll want to find out whether reimbursement is made within several weeks or months of providing proof of enrollment, only after the course is completed, or in a lump sum at the end of the year. Make sure you also understand all terms of the reimbursement program in advance, particularly any conditions in which you may be expected to pay your employer back for all or partial tuition costs (such as failing or withdrawing from the course).3,4

Possible Limits or Restrictions on Reimbursement

Keep in mind that employers may have certain limits on how much tuition reimbursement you are eligible for and/or restrictions on how and when it can be used. Here are a few things you should look into before you start planning to enroll in courses

  • Does the amount of reimbursement for which you are eligible depend on the length of time you've been with the company?
  • Are there any caps on the number of classes you can take at once?
  • What is the dollar amount you can be reimbursed for per year? (Check if this applies to the company's fiscal year or the school year.)
  • Is reimbursement vested—meaning, do you have to remain at the company for a set amount of time afterward to receive full benefits, or are benefits paid out in intervals following completion of each course? (Companies may also pay out the full reimbursement amount but require employees to pay back a portion if they leave before an approved period of time, sometimes as much as 5 years.)4

While some of this may seem restrictive, remember that businesses offer tuition assistance in part to better the strength of their own workforce. What is tuition reimbursement if not an investment in the employer and employee's mutual future benefits?4

Is Tuition Reimbursement Taxable?

More than $5,250 in tuition reimbursement from your employer (per calendar year, not academic year) will count as taxable income. For example, if your employer pays out $8,000 in tuition reimbursement over the course of the year, you will need to pay income tax on $2,750.5 (Additional information on tax laws and requirements regarding tuition reimbursement can be found here.)

Learn more about paying for college: Explore financial aid options at AIU.

1. Center on Education and the Workforce, Georgetown University, "Recovery: Job Growth and Education Requirements Through 2020," p.4, on the Internet at https://cew.georgetown.edu/wp-content/uploads/2014/11/Recovery2020.ES_.Web_.pdf (visited on February 18, 2016).

2. Society for Human Resource Management, "2014 Employee Benefits," p. 24, on the Internet at http://www.shrm.org/Research/SurveyFindings/Documents/14-0301%20Beneftis_Report_TEXT_FNL.pdf (visited on February 18, 2016).

3. Salary.com, "Tuition Reimbursement," on the Internet at http://www.salary.com/tuition-reimbursement/ (visited on February 18, 2016).

4. Forbes, "Tuition Reimbursement: A Benefit for Some Employees and Employers," on the Internet at http://www.forbes.com/sites/moneybuilder/2012/07/20/tuition-reimbursement-a-benefit-for-some-employees-and-employers (visited on February 18, 2016).

5. IRS, "Employer-Provided Educational Assistance," on the Internet at https://www.irs.gov/publications/p970/ch11.html (visited on February 18, 2016).