Question

Johnny received a $2,100 grant from his employer and, as required by his employer, used all of the money for tuition and fees to take three graduate-school courses during the period September 1 to December 31 of the current year. Johnny is not a candidate for a degree and has never received a scholarship or fellowship grant before. He had previously met the minimum educational requirements for his employment position; however, due to new requirements established by his employer, these courses were necessary for him to retain his job. In computing his current-year taxable income, Johnny should include

A. Gross income of $2,100 and an education expense deduction of $2,100.

B. Gross income of $2,100 and no education expense deduction.

C. No gross income and no education expense deduction. (correct answer)

D. Gross income of $0 and an education expense of $2,100.

(1) See the multiple-choice question above, which deals with how to treat a grant from an employer that pays for tuition.

Required: Rank the four answers from most attractive to the taxpayer to least attractive to the taxpayer.

	Write the LETTER answer from the multiple-choice question above	A thorough explanation of why this answer is most/least attractive or somewhere in between
Most attractive
2nd most
2nd least
Least attractive

Answer 1

Up to $5,250 in employer-provided tuition assistance, also known as employer educational assistance or employer tuition reimbursement, can be excluded from an employee’s income each year.

Eligible expenses include tuition, fees and course materials like textbooks, supplies and equipment. Eligible expenses do not include the cost of a computer or other supplies that can be retained by the employee after completing the course of instruction.

Eligible expenses also do not include the cost of meals, lodging or transportation. Courses involving sports, games or hobbies are not eligible unless they are required for the degree program or they have a reasonable relationship to the employer’s business.

The exclusion from income is not available to the employee’s spouse or dependents. Some employers will pay for the cost of tuition up-front or after the employee completes the course. Some employers require the student to complete the course or earn a specific grade.

Suitability	Options	Explanation
Most attractive	No gross income and no education expense deduction	Bcoz when the taxpayer excludes income from Employees income, it will reduce taxability while paying. Here paying of tax first & waiting for refund is not necessary
2nd most	Gross income of $2,100 and an education expense deduction of $2,100	Here including the income of $2100 in income statement & deduction is claiming. There will be no additional tax burden to the taxpayer.
2nd least	Gross income of $2,100 and no education expense deduction	Not claiming of education deduction, taxpayer will have an additional impact of taxability for his expense
Least attractive	Gross income of $0 and an education expense of $2,100.	Not showing the income & claiming deduction will have penalties & fines. This is the worst case of all.