Educational assistance and tuition remission are addressed in the IRS code sections 117 and 127. Expenses for education are covered in code section 162.

Section 117 deals exclusively with educational institutions and exempts from taxable income all tuition benefits provided to employees and their dependents below the graduate level. This section also provides an exclusion for graduate level courses taken by employees who are involved in teaching or research at their institution.

Section 127 covers educational assistance plans offered by any employer to their employees. This section has been allowed to expire, and later extended over the last several years. This has resulted in lapses in the tax exclusion, and even retroactive reinstatement of the exclusion. As of June 30, 1997, this section only excludes from taxable wages undergraduate courses taken. All graduate level courses are taxable at this point in time under section 127.

The last IRS code section under which tax relief can be found is section 162. This section spells out which educational expenses can be considered deductible as an ordinary and necessary business expense on an individual’s tax return. Educational expenses paid for by an employer that qualify under section 162 are not considered taxable income. This qualification extends only to employees themselves, and not to their dependents. As a result all educational assistance given to the spouse of an employee for graduate level courses is taxable income and is added to the employee’s taxable wages, with taxes withheld.

Unfortunately, the tax deduction for employee’s is very narrowly defined in this section. There are only two instances under which the education is considered "job related" and therefore non taxable.

1. Education which maintains or improves skills required of the individual in his or her employment.
2. Education which meets an express requirement or bona fide business purpose of the individual’s employer, or which meets the requirements of an applicable law or regulation, imposed as a condition to the retention of the employee’s employment status.

The second part of code section 162 specifically defines which education cannot be considered "job related" and is therefore taxable income to the employee.

1. Education taken to meet the minimum educational requirements for qualification in a particular job in effect at the time of employment.
2. Education which qualifies an employee for a new or different occupation.

Any education which falls under these categories cannot be considered job related even if it also falls within the definitions of job related education under the first part of section 162.

In the past La Sierra University took a very broad interpretation of these regulations, and most educational assistance given at the graduate level was deemed "maintaining or improving" job skills for the employee.

La Sierra University will now apply the more narrow interpretation of section 162, and all educational assistance given at the graduate level to employees will be considered taxable income unless it can be determined that the education expressly meets the employers requirements for continued employment, or are taken for the purpose of improving the employees job skills for the job they are currently hired for. The exclusion for those involved in teaching and research in section 117 will be honored.