USA Qualified Tuition Plan withdrawl after Employer Sponsored Tuition contribution

[HDSDDS]

My spouse's employer offers a tuition reimbursement benefit. They contribute a certain amount which is sent directly to the school my daughter attends. I am aware that if a student recieves a regular scholarship from the school, that a non-qualified 529 Plan withdrawl can be made in an amount equal to the scholarship recieved, and the 10% penalty is waved. I am aware that taxes would be paid on the earnings portion only of the distribution. My question is: is the amount of the employer tuition contribution benefit treated in the same way?

 

[DTA93433]

If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. This means your employer shouldn't include those benefits with your compensation shown on Form W-2, box 1.

 

[HDSDDS]

Thank you for your reply, but that is not the question I am asking...None of my wife's employer contribution to my child's tuition is reported on her W-2... She works in higher education, and the school gives a tuition grant to the school attended by my child, directly...this reduces my net tuition and fees bill...the question I am asking is whether this tuition grant/employer contribution is treated the same way as if the student received a direct scholarship....money from a 529 can be withdrawn as a non-qualified distribution in an amount equal to a scholarship received, without being subject to the regular 10% penalty for non-qualified withdrawals...

 

[DTA93433]

What you are speaking of is considered "qualified tuition reduction". In your case, I'm presuming the daughter is (1) taking undergraduate studies and (2) is a dependent of the taxpayer (mother). If so, the taxpayer would still qualify for an exemption for the grant being considered taxable (W-2) income. Since there is no reporting - there would be no 10% penalty applied either.

 

[dbell154]

My spouse's employer offers a tuition reimbursement benefit. They contribute a certain amount which is sent directly to the school my daughter attends. I am aware that if a student recieves a regular scholarship from the school, that a non-qualified 529 Plan withdrawl can be made in an amount equal to the scholarship recieved, and the 10% penalty is waved. I am aware that taxes would be paid on the earnings portion only of the distribution. My question is: is the amount of the employer tuition contribution benefit treated in the same way?

Only one of the amounts is tax free. If not included in income, the employer contribution is effectively tax free. The 529 earnings amount is fully taxable, but with no penalty.