How do Employer Tax Credits for Education Work?

As the economy evolves, many businesses are finding it harder and harder to keep their employees up-to-date with the latest advances. To stay competitive in the global market, the Federal Government and many state governments are offering tax credits to companies that fund employee coursework. An employer who provides educational assistance benefits to his or her employees may deduct up to $5250 of these payments from their federal tax returns as a business expense. These funds may be used to pay for tuition and equipment, but not for room, board, or transportation. Employees who receive these benefits may exclude up to $5250 from their income tax return. Benefits above $5250 per year, however, are taxed normally.

Some states offer their own incentives for employers to advance the education of their employees. Oregon, for example, offers money to employers who educate their employees in a way that will lead to further job growth or job retention, especially in trade sectors or in fields experiencing a shortage of skilled workers. Instead of offering tax breaks, WorkSource Oregon (the name of the program) evaluates company applications and funds those that need the most help.

Virginia offers a tax-credit similar to the federal government, which covers up to 30% of educational costs, though the program only receives a limited amount of money every year. Other states, such as Arizona, offer to reimburse employers who train employees. Under Arizona's grant program, businesses can apply for grants to reimburse up to 75% of training costs for new employees in jobs that meet specific wage criteria. They can also receive up to 50% for retraining existing employees.