itonewbie
Level 15

@Liesal wrote:

 ...total tax free 10500 but only 9564 shown on w2.?


Not sure what you meant to say here.  How is $10,500 relevant?  That's only the maximum amount of annual exclusion x 2 years.  Based on your information, the actual amounts reimbursed were $4,314 wrt 2021 tuition and $5,250 for 2022 tuition.

Your post seems to imply that the employer paid a total of $9,564 ($4,314 + $5,250) through the EAP in 2023?  Are you saying this amount is reported on the W-2?  If these were treated as tax free, there may be a notation in the compensation breakdown but it shouldn't show up on the W-2.

If it's all paid in 2023, shouldn't $4,314, which is above the annual limit, be included in Box 1?  Unlike §25A, §127 has no timing rules and the annual limit is determined simply by reference to "education assistance furnished to an individual during a calendar year" rather than any other time periods such as academic year, etc.  Below is an excerpt from the IRC [emphasis added]:

127(a)(2)$5,250 maximum exclusion.—

If, but for this paragraph, this section would exclude from gross income more than $5,250 of educational assistance furnished to an individual during a calendar year, this section shall apply only to the first $5,250 of such assistance so furnished.

In any case, where EAP reimbursements are made after the close of the tax year, Pub 970 provides guidance on how such reimbursements should be treated, depending on whether these are received before or after the return is filed.  Given what you know now, the 2022 EAP reimbursement, presumably made in 2023, would be used to offset your client's 2022 education expenses.  Question is: How is it possible that your client received a reimbursement of $5,250 for having paid $4,416.

I may be missing a beat but things don't seem to be adding up here...

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