Should I report Employer Tuition Assistance? (what if it's paid after tax year?)

Question

I live, work and attend school in the U.S.

My employer has a tuition assistance program in place that covers 100% of tuition and eligible expenses up to $5000 per calendar year. My plan was to attend 3 half-year terms of college and get reimbursed over 3 calendar years.

I attended college the latter half of 2019 accruing $3755 in tuition with another $500 scholarship applied. Thus, I received a total reimbursement of $3255 from my employer and was paid out in 2019. I will be attending school throughout 2020 and will be paid out roughly the same amount in 2020 (July) and 2021 (January). Essentially I'll have free college which is a nice benefit, but what are the tax implications here?

I am wondering:

• Is the Employer Tuition Assistance considered financial aid?
• Do I need to report any/all of the $3255 in Employer Tuition Assistance? (up to $5,250 received is considered tax-free)
• If so, do I report the Employer Tuition Assistance as "Grants and Scholarships"?
• Should I include my grants and scholarships in income?
• For the 2020 tax year, in which I have 2 terms of tuition but receive some Employer Tuition Assistance paid out in 2021, does this get reported in 2020 or the following tax year?
• If reported in 2021, how do I report this without having had any 1098-T for the year (or will I receive a 1098-T since the school will be paid in 2021)?

Answer 1

Good news is that it is tax free. In fact you could get $5250 each year. Generally employer benefits count for the year you receive them.

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 should not include the benefits with your wages, tips, and other compensation shown in box 1 of your Form W-2.

As for other scholarships, they are also tax free if used for qualified expenses. (Room and board don’t count for example).

A scholarship or fellowship is tax free only if you meet the following conditions:

You are a candidate for a degree at an eligible educational institution. You use the scholarship or fellowship to pay qualified education expenses.

Like everything, there are qualifications and criteria.

Source: https://www.irs.gov/newsroom/tax-benefits-for-education-information-center