How do I report IRS section 127 education reimbursements over $5,250 across tax years?

The key thing here is that section 127 educational assistance benefits are reported based on when you actually receive the money, not when you took the classes. The IRS uses what's called a "cash basis" for this type of income reporting. For 2023 taxes, you'll only report the $2,625 you received in November 2023. Since this is under the $5,250 annual limit, it's fully excludable from your income. For 2024, you'll indeed need to report the total $7,875 you receive that year ($2,625 remaining from 2023 classes + $5,250 for 2024 classes). Since this exceeds the annual $5,250 limit, the excess $2,625 will be taxable income that should appear on your W-2. Unfortunately, the IRS doesn't have a mechanism to "explain" that the extra amount was for the previous year's classes. Section 127 works strictly on a calendar year cash basis for the exclusion limit.

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I just wanted to follow up after trying taxr.ai for my educational reimbursement situation. It was actually really helpful! I uploaded my reimbursement statements and my university tuition receipts, and it immediately flagged that some of my payments would cross tax years. The system explained exactly how to report each payment and even identified that part of my program qualified for a lifetime learning credit for the portion my employer didn't cover. It saved me from making a reporting mistake that would have cost me about $800 in unnecessary taxes. The documentation it generated made it super easy to enter everything correctly when I filed. Definitely recommend for anyone dealing with education expenses!

I had a similar situation last year and spent HOURS trying to get someone at the IRS to clarify how to handle it. Called like 8 times and kept getting disconnected or waiting forever. Finally found this service called https://claimyr.com that got me through to an actual IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed exactly what others here are saying - the Section 127 exclusion applies based on when you RECEIVE the money, not when the classes were taken. They explained I needed to include the excess amount as taxable income on my return. Saved me from an amended return headache later!

I need to apologize for calling Claimyr a scam. After my last tax notice panic, I decided to try it, and I'm shocked that it actually worked! After trying to call the IRS myself for 3 days straight (and never getting through), this service got me connected in about 35 minutes. The IRS agent I spoke with confirmed exactly how to handle my education reimbursement that crossed tax years. She walked me through the specific forms and line numbers where I needed to report the excess amount. Would have taken me weeks to figure this out on my own, if I ever did. Saved me from making an expensive mistake on my taxes.

Probably worth mentioning that you should check whether your employer reports this correctly on your W-2. Your employer should only include the $2,625 from 2023 in your 2023 W-2, and in 2024, they should include the full $7,875 but only report $2,625 as taxable income (the amount over the $5,250 limit). The box to watch is Box 1 (Wages, tips, other compensation) on your W-2. The amount over $5,250 should be included there. Also check Box 14, as many employers will itemize educational assistance there, though it's not required. If they mess this up, you might need to ask your payroll department for a corrected W-2!

Just a heads up - make sure your employer's educational assistance program actually qualifies under Section 127! My company thought their program qualified, but turns out it didn't meet all the requirements. A qualified program needs a written plan document, can't favor highly compensated employees, can't give more than 5% of benefits to shareholders/owners, and some other requirements. If the program doesn't qualify, ALL of the educational assistance becomes taxable income. Worth double-checking with your HR department!

Great question about verifying your company's Section 127 program! You can start by asking HR for a copy of the written plan document - this is actually required for qualification. The plan should outline eligibility requirements, types of education covered, and how benefits are administered. Key things to look for: the plan can't discriminate in favor of highly compensated employees (those earning over $135,000 in 2024), no more than 5% of benefits can go to shareholders/owners, and it must be a separate written plan (not just mentioned in an employee handbook). If HR can't provide the plan document or seems unsure about these requirements, that's a red flag. You might want to ask your tax preparer to review the plan details, or consider getting clarification from the IRS directly about whether your specific situation qualifies for the exclusion. Better to find out now than during an audit later!