Why Employers May Want to Go Over the $5250 Tuition Reimbursement Limit

In the last MBA Life blog post, I wrote how to choose an MBA program. Now that you have chosen an MBA program, applied and hopefully were accepted to your top choice, you need to get ready to pay for your MBA. One of the key tools for this is employer tuition reimbursement/assistance programs. In this article; I am going to discuss the $5250 tuition reimbursement limit, why this limit is common and why employers may want to offer higher levels of tuition assistance to their employees.

Employees love tuition assistance programs. Most large corporations offer them to stay competitive, even smaller companies will offer some type of tuition reimbursement program. Any educated employee expects their company to provide these programs and to support them in their quest for higher levels of education. Younger workers in particular find these programs attractive. Any organization would be wise to consider this point if your organization is hoping to reduce employee turn-over of younger workers, such as millennials.

Often these programs have a cap, or limitation of $5250 per year. This can be a challenge for employees pursuing degrees such as an MBA, due to the actual degree cost being much greater than $5250 per year, when most part-time students typically complete these programs in two years. So where does this limitation come from? When I obtained my MBA, prior to the “technology crash” of 2000, corporations often covered the full cost of an MBA program, in exchange for your agreement that you would stay with the company for a period of time after completion. The current education assistance programs offered by most corporations fall under Code 127, or the Internal Revenue Code Section 127. By utilizing a Code 127 program, both employers and employees will avoid federal payroll taxes on qualifying payments, and employees will save on federal income taxes that would otherwise apply. There is a limit to these programs and that limit is $5250 per year. This is why most corporations cap the program at this “magic number” of $5250. Anything above $5250 per year is generally considered as taxable income.

While an employee would have to pay taxes on any amounts of tuition reimbursement above $5250, this would still save the employee a lot of money. If organizations offered a higher level of tuition assistance they might find it easier to hire new employees and could increase the loyalty of existing employees. Companies that have increased their programs above the $5250 limit, particularly for graduate programs, such as the MBA, have found these tuition assistance benefits provide an excellent ROI. Attracting and retaining talent is essential to the success of any corporation and higher levels of tuition assistance can help to increase employee loyalty and satisfaction. Employees at corporations that go above the $5250 limit feel appreciated and are then likely to be more productive and will work hard to support the organization’s mission and goals. They will be driven to support an organization that supports them with these higher paying tuition assistance programs. Employers should consider the overall benefits and potential ROI of increasing the limits on their tuition reimbursement program.

If you have any questions about the Lourdes University MBA degree, contact Dr. Jami Curley at jcurley@lourdes.edu.