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The company I work for offers an Educational Assistance Plan and I took classes over the Spring and Fall semesters of 2021. The company requires final grades before reimbursing the expense and so I was unable to submit the cost of these two semesters until last week. Today I was told that the Dec 30th payroll was already processed and so my expense wouldn't be paid out until January. Because I took the classes in 2021, can the $5,250 exclusion apply to my 2021 tax return or would the exclusion apply to the year the reimbursement is paid out?

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Unlikely. The exclusion would be applied to the year in which it was paid. The way the income is excluded is by not reporting it in box 1 of your W2, which means the employer just doesn't add it to the total wages reported as paid to you. You don't do anything to exclude this income, it already is missing from your W2 when you get it at the end of the year.

Since your employer is paying it to you in 2022, the W2 in question is the W2 the employer will give you in 2023, for the tax year 2022.

Unless you can convince them somehow to cut you a check before December 31st, it looks like this year is lost.

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Everyplace I have worked has had the challenges of getting the fall semester reimbursement done before the end of the year. But with the semester ending in many cases after the 15th of the month, almost nobody can get the reimbursement done if the check has to be cut before December 31st. It was even harder when we had to wit for the school to mail the report card...

I took a look at [IRS Publication 970 (2020), Tax Benefits for Educationp970: (note: the 2020 instructions are the most recent one on the IRS website)

Adjustments to Qualified Education Expenses

For each student, reduce the qualified education expenses paid by or on behalf of that student under the following rules. The result is the amount of adjusted qualified education expenses for each student.

Tax-free educational assistance.

For tax-free educational assistance received in 2020, reduce the qualified educational expenses for each academic period by the amount of tax-free educational assistance allocable to that academic period. See Academic period , earlier.

Some tax-free educational assistance received after 2020 may be treated as a refund of qualified education expenses paid in 2020. This tax-free educational assistance is any tax-free educational assistance received by you or anyone else after 2020 for qualified education expenses paid on behalf of a student in 2020 (or attributable to enrollment at an eligible educational institution during 2020).

If this tax-free educational assistance is received after 2020 but before you file your 2020 income tax return, see Refunds received after 2020 but before your income tax return is filed , later. If this tax-free educational assistance is received after 2020 and after you file your 2020 income tax return, see Refunds received after 2020 and after your income tax return is filed , later.

The information on getting refunds after January first:

Refunds received in 2020.

For each student, figure the adjusted qualified education expenses for 2020 by adding all the qualified education expenses for 2020 and subtracting any refunds of those expenses received from the eligible educational institution during 2020.

Refunds received after 2020 but before your income tax return is filed.

If anyone receives a refund after 2020 of qualified education expenses paid on behalf of a student in 2020 and the refund is paid before you file an income tax return for 2020, the amount of qualified education expenses for 2020 is reduced by the amount of the refund.

Refunds received after 2020 and after your income tax return is filed.

If anyone receives a refund after 2020 of qualified education expenses paid on behalf of a student in 2020 and the refund is paid after you file an income tax return for 2020, you may need to repay some or all of the credit. See Credit recapture next.

What this means is that the money you get in January 2022, for expenses in Spring and Fall 2021, will be used to reduce the numbers on the 1098-T for 2021.

The company should still treat this as 2021 expenses.

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  • I don't believe the last sentence is true, which is the key point of the question. Based on what are you saying this?
    – littleadv
    Dec 21 '21 at 20:32
  • My current company only requests that the 2021 education request be submitted by the end of December. Also the IRS spends a considerable amount of words dealing with cross year education costs. People pay in December for January expenses, people get refunds on bills paid in December. The big issue is that the money from the company doesn't appear on the W-2. Therefore the 1098-T adjustments are done without documentation. Dec 21 '21 at 20:44
  • The 1098-T adjustments should be made because the reimbursement applied to them, but the exclusion from income doesn't necessarily have to be in the same year. I linked to the IRS pub to employers, and there's nothing there about attributing refunds paid in year X to year X-1 solely because the reimbursement request was submitted late in the year.
    – littleadv
    Dec 21 '21 at 20:46

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