Tuition Repayment

[buzzardbreath]

Employer has an 80% tuition reimbursement program, but under the terms is a feature that if the employee voluntarily leaves the employer, she has to repay the employer.

We have been using the unpaid portion (20%) to claim Lifetime Learning Credit.

If my client quits this employer, she will be required to repay her current employer some $12,000. If this happens, how can she receive any tax benefit from the repayment? Or is there any tax benefit?

[Koss]

Repayment

I think you're in uncharted waters...

Best approach might be to amend those years that are still open, to increase the amount of the education credit.

I wouldn't try to take it all in the year in which it is repaid, because the payment won't be made to the college or university.

The effect of the repayment makes it look a lot like a loan from the employer. That's how I would argue it if the amended returns were subjected to an audit. The account statements from the school, for the years in question would prove that the tuition was paid in those years. That might be enough. But if the paper trail clearly shows that it was paid by the employer, then you can also show that she repaid the employer at a later point in time.

The repayment obligation effectively transforms it into a loan. And you take the education credit for the years in which you pay back a loan; you take the credit for the year in which the tuition was actually paid, even if it was with borrowed funds.

BMK

[Burke]

Didn't you mean "you don't take the credit in the year you pay back the loan;...."

[Koss]

Typo

Burke wrote:

Didn't you mean "you don't take the credit in the year you pay back the loan"

Yes. Good catch.

BMK