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Educational Assistance Policy

The Office of State Personnel (OSP) is responsible for administering the educational assistance plan for the State of North Carolina. This policy is set forth in the OSP Personnel Manual and outlines the situations in which it is permissible to pay for or reimburse the employee for expenses incurred in furthering the employee's education or improving their job skills. The tax status of educational assistance payments is determined by reference to the Internal Revenue Code Section 127 and the applicable IRS Regulations. A closely related subject to educational assistance is Qualified Tuition Waiver Plans . These plans are only available for employees of colleges and universities and are discussed separately.

Gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee if the assistance is furnished pursuant to a program which is described as follows:

1. A separate written plan of an employer for the exclusive benefit of his employees to provide these employees with educational assistance.
2. The program shall benefit employees who qualify under a classification set up by the employer and found by the Secretary of Labor not to be discriminatory in favor of employees who are highly compensated or their dependents.
3. The program must not provide eligible employees with a choice between educational assistance and other remuneration includible in gross income.

The payment, by the employer, of expenses incurred by or on behalf of an employee for education of the employee (including, but not limited to, tuition, fees, and similar payments, books, supplies, and equipment), and the provision by the employer, of courses of instruction for such employee (including books, supplies, and equipment), but does not include payment for, or the provision of, tools or supplies retained by the employee after completion of a course of instruction, or meals, lodging, or transportation.

The term "educational assistance" does not include any payment for, or the provision of any benefits with respect to, any course or other education involving sports, games, or hobbies unless such education involves the business of the employer or is required as part of a degree program. The phrase "sports, games, or hobbies" does not include education that instructs employees on how to maintain and improve health so long as such education does not involve the use of athletic facilities or equipment and is not recreational in nature.

Education (under an educational assistance plan) is not limited to courses that are job related or part of a degree program. It also does not matter whether the education paid for or provided under a plan is furnished directly by the employer, either alone or in conjunction with other employers, or through a third party such as an educational institution.

Limitation of Benefits
IRS Code Section 127, excludable amount of tuition, fees, and related expenses is limited to $5250 per year.  This limit is applicable for both graduate and undergraduate level courses.

Reporting Rules for Educational Assistance Plans
Any employer maintaining an educational assistance plan for tax years beginning after 1984 must file an information return with respect to the program as prescribed by regulations. The return must include:

1. the number of employees of the employer;
2. number of employees of the employer to participate under the plan;
3. the number of employees participating under the plan;
4. the total cost of the plan during the year;
5. the name, address, and taxpayer identification number of the employer and
6. the type of business in which the employer is engaged; and
7. the number of highly compensated employees of the employer, including those eligible to participate in the plan and those actually participating in the plan.