Potential good tax news for EMBA students
With full corporate reimbursement declining, exploring possible tax deductions for your Executive MBA tuition can help make a significant difference.
What might tax savings look like?
Consider the following hypothetical example of an Executive MBA student who is married with one child and paying full tuition.
Student Salary: $120,000
Spouse Salary: $60,000
Estimated Tax Savings: Between $3,000 – $8,000 depending on other deductions
Tax savings depend on your situation. For students who do receive employer-paid education benefits, the question of whether the tuition reimbursement is a taxable fringe benefit is an important one.
Employer-paid education benefits are considered taxable income to the taxpayer if the amount exceeds $5,250 in a year, unless it is considered a ‘working condition fringe benefit,’ or a benefit that the employee could have deducted if that employee had paid for it. Generally, most Executive MBA students qualify to fully exclude their reimbursement from their taxable income even if it is included in a W2 by their employer (see Form 2106).
For students who are self-employed, tuition may qualify for a business expense under Schedule C, if it improves an existing job skill and does not qualify you for a new position. Students who are working for a company or organization, but do not receive reimbursement or full reimbursement may want to ask their accountant about use of the miscellaneous itemized deduction. To qualify, your education must improve an existing job skill and not prepare you for a new job. NOTE: The alternative minimum tax may take some of these benefits away!
The most favorable tax court ruling to support deducting your MBA is Allemeier v. Commissioner. In that case, a dental product sales and marketing representative enrolled in a part-time MBA program and was promoted to marketing manager during the program. The court ruled that the MBA improved the student’s existing job skills and supported the itemized deduction of the student’s MBA costs.
Most importantly, students who are paying for all or part of the Executive MBA education should check with their accountant to determine whether their tuition payments qualify as a tax deduction. Your accountant can also help determine whether tuition reimbursement is considered a taxable fringe benefit.
Disclaimer: The Executive MBA Council offers this section for information purposes only. The council does not provide certified tax advice and encourages you to talk to your CPA about your tax situation.