Is a small business owner able to pay college tuition for an employee?

Q: Is a small (incorp) business owner able to pay college tuition for an employee? The employee happens to be a family member also. And is it deductible? Thanks. —Mary, Sudbury

The following answer was provided by Mark Misselbeck, CPA, Levine Katz Nannis & Solomon PC, Needham.

A: There are only two ways that education may be paid for by an employer for an employee.

The first is where the employee has met the qualifications required for his or her profession. Having met the minimum standards for that field, education to maintain and enhance skills in that field would be deductible by the employee and may be paid for by the employer (except for an employer that is a subchapter S corporation, since it may not provide tax-free fringe benefit to a shareholder or their children) as a tax-free fringe benefit.

The second is an Educational Assistance Plan. This is a plan that meets the requirements of the tax law. Payments of up to $ 5,250 may be made for any education for the employee. The plan must be written and non-discriminatory. If these two (of many conditions) are met, the total amount paid under the plan for owners or their relatives is limited to no more than 5% paid out for all employees.

From the sounds of your situation, there is a limited employee population and you would not be willing to underwrite 19 other employees to the tune of $ 5,250 in order to provide such a benefit to your family member. Sorry.