Strategic Guide to Tuition Reimbursement

Is employer tuition reimbursement taxable?

Employer tuition reimbursement is generally tax-free, up to an annual limit of $5,250. Under Section 127 of the Internal Revenue Code, this amount is excluded from your gross income, meaning if your company reimburses you under the education assistance program, you do not have to report this amount in your federal income taxes, provided your company’s policy adheres to the federal regulations.

John Gibson, senior managing director of residential programs at the Daniels School of Business, adds this caveat: "Many students don't realize that under current U.S. tax law, only the first $5,250 of educational assistance per year is tax-free. Anything above that is often taxed as regular income, which can result in a surprisingly smaller paycheck during reimbursement months." 

This education assistance can cover approved education costs such as tuition, fees, books and supplies. However, it does not apply to expenses like meals, lodging, transportation, personal tools and supplies, or courses related to sports or hobbies unless they are work-related or part of a degree program. The tax exclusion also applies only to loans incurred for your own education and cannot be used for a spouse’s or dependent's loans.

Starting with tax years beginning after 2026, the $5,250 limit is set to be adjusted for cost of living, which means the tax-free cap may increase over time.

But what happens if your reimbursement amount exceeds the $5,250 annual cap?

In this case, the exceeded amount will be considered as taxable income. However, if the reimbursement is towards an education that is related to your job, your employer may classify the excess amount as a working condition fringe benefit, which makes it non-taxable as long as it meets IRS rules and is documented properly.

How to ask for tuition reimbursement

Securing tuition assistance is less about asking for a favor and more about proposing an investment. Your success often depends on how well you prepare the groundwork for that conversation. Before you approach your manager, you need a clear, strategic narrative that effectively communicates why your degree is not just a personal milestone but a valuable business asset for the company.

Start by reviewing your employee handbook or benefits portal to confirm whether your company already offers tuition reimbursement and what the requirements are. Many employers have a formal process, and following it closely improves your chances of approval. Before you send the application to your company, read your company’s policy, especially on the following:

• Does the course need to be job-related?
• What expenses are covered — tuition, fees, books, supplies, etc.?
• Which are the eligible colleges or universities?
• How is the reimbursement paid — upfront or after completion?
• Are there any binding requirements after receipt of reimbursement?

As Gibson notes, many students are caught off guard because “students often assume books, fees and software costs are included. However, frequently policies are strictly for 'tuition' only, leaving students to cover substantial mandatory fees." Hence, it is extremely important to research your company’s policy on tuition assistance before making your decision. If any part of the policy is unclear, proactively reach out to your manager or HR for clarification. 

Once you are clear on the policy, speak to your reporting manager and make your case. Managers usually evaluate such requests based on three things: Is this relevant to your role, what does it cost and what is the return for the team?

"Don't assume if your company offers tuition reimbursement, they’ll automatically approve it," says Gibson. "Come prepared with specifics such as a short summary of the program, expected costs, format, and how the coursework applies to your current or future role. It shows professionalism." 

So, lead with what you want to gain from this course. Mention the program, school and what the course is about. Then, connect it to your current role and explain how it will help you do your job better. Follow this by describing the payoff, specifically listing the skills or outcomes you will bring back to the team. And most importantly, ensure that your request is easy to approve by presenting the full picture to your manager and HR — include the total cost, the timeline, a concrete plan on how you will manage the coursework with your job and a clear ask for their support on the next steps.

However, if your company doesn't have a formal policy on tuition assistance, don't let that stop you. Draft a business case that outlines the costs and demonstrates the return on investment the organization will get from your new skills.

Tuition assistance programs do more than just help employees build new skills; they provide significant value to the employer as well. By offering this benefit, companies can boost employee retention, drive better performance and create a robust pipeline of talent for future roles. These costs are generally tax-deductible for the company as they fall under business expenses, so be sure to point out that they can typically claim up to $5,250 per employee, per year, under IRS Section 27, as a tax deduction by utilizing this policy.

Ultimately, tuition reimbursement is more than just a benefit — it is a game-changer for your future. It removes the financial barrier between you and your degree, accelerates your career trajectory and leverages tax advantages to work in your favor. If you are ready to level up, start by checking your company’s education assistance policy and making a clear request that connects the coursework to your job. And if that road hasn’t been built yet, be the one to pave it. A single proposal from you could be the spark that transforms your career and opens the door for everyone who follows.

Explore our business programs and make the most of your tuition reimbursement benefits today.