Q&A: Educational Assistance?

Q: Our senior pastor is pursuing an advanced degree through a seminary located in another state. Our church board would like to pay his tuition expense, since we believe that our church will directly benefit from this additional education. Are we required to report the amounts we pay as taxable income to the pastor, or are these payments nontaxable?

A: Note the following points:

  1. Under section 127 of the tax code, your pastor can exclude up to $5,250 of educational assistance benefits paid by the church each year under an educational assistance program. This means that the church should not include the benefits with the pastor's wages and other compensation shown in box 1 of Form W-2.
  2. An educational assistance program in the context of church employers (1) is a separate written plan of an employer for the exclusive benefit of its employees to give them educational assistance; (2) cannot have eligibility requirements that discriminate in favor of officers or highly compensated employees or their dependents (as defined earlier in this chapter); (3) must not provide eligible employees with a choice between educational assistance and cash; and (4) must provide for reasonable notification of the availability and the terms of the program to eligible employees.

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Posted: November 3, 2008

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