Will my company deduct the money I owe them for tuition before taxes, or after?
March 9, 2011 7:25 AM Subscribe
My company paid $1,000 for me to take a class, but in exchange I can't leave the company for 18 months, or I'll have to pay them back. I also have 50 hours of vacation saved up, and when I leave the company I will get those hours back as money. If I make $20 an hour, the 50 hours translate into $1,000 before taxes. My question is, will my company take their $1,000 back pre-tax, or post-tax?
did they pay the 1000.00 to YOU or to the class provider? If they paid it to you, i would guess it would depend on if they took taxes out at that time. if they paid to the provider, you are going to owe the flat rate tuition of 1000.00.
posted by domino at 7:52 AM on March 9, 2011
posted by domino at 7:52 AM on March 9, 2011
Response by poster: I paid for the class and the reimbursed me. I don't want to talk to the payroll department since the company is very small and I don't want this getting back to my project manager.
posted by PlayWithFire at 9:01 AM on March 9, 2011
posted by PlayWithFire at 9:01 AM on March 9, 2011
Do you have the pay stub from when they gave it to you?
If it was added to your paycheck, you should clearly be able to see if they gave it to you pre- or post- tax.
If it was a separate reimbursement transaction, those are post-tax.
I would assume it would be post-tax.
posted by rmless at 9:23 AM on March 9, 2011
If it was added to your paycheck, you should clearly be able to see if they gave it to you pre- or post- tax.
If it was a separate reimbursement transaction, those are post-tax.
I would assume it would be post-tax.
posted by rmless at 9:23 AM on March 9, 2011
Post-tax. It's an obligation you owe to the company that is separate from your income. Look at it this way: the withholding from your paycheck is just a convenience for you to pay money you owe (whether it's a convenience for you, the company, or both is beside the point). The "inconvenient" way to do it would be for you to simply owe them a separate check, which would obviously come out of your own checking account, which presumably consists of your accumulated after-tax income.
Moreover, generally, only very few things can be deducted from income pre-tax, and those are heavily regulated by the IRS.
posted by pardonyou? at 9:58 AM on March 9, 2011
Moreover, generally, only very few things can be deducted from income pre-tax, and those are heavily regulated by the IRS.
posted by pardonyou? at 9:58 AM on March 9, 2011
The "inconvenient" way to do it would be for you to simply owe them a separate check, which would obviously come out of your own checking account, which presumably consists of your accumulated after-tax income.
This answer is misleading. The tax treatment of this payment does not primarily depend on how you are required to make it -- check, payroll deduction, etc. It depends on the law – in particular, (I think) it depends on whether having the class comped in the first place counted as taxable compensation to you. If the class was income to you, then your reimbursement to the company has to come from after-tax income – if you paid it with pre-tax income, you would be avoiding the tax on the class (i.e., you would wind up down $1000 pre-tax but up the class, but you should actually be down $1000 pre-tax, down the tax on $1000, and up the class). On the other hand, if the class was not income to you, you can pay for it out of pre-tax income – you received a class, received $1000, and then paid $1000 – the class was not income and the payments cancel out; voila, no income.
In my previous answer, I gave reason to believe the class might not be income to you, which if true means you should pay the reimbursement out of pre-tax dollars.
All the same caveats apply – I am not your lawyer, and these are more like doodles than legal advice. I’ve presented more details so you’ll know what kind of answer you’re looking for here.
posted by grobstein at 1:31 PM on March 9, 2011
This answer is misleading. The tax treatment of this payment does not primarily depend on how you are required to make it -- check, payroll deduction, etc. It depends on the law – in particular, (I think) it depends on whether having the class comped in the first place counted as taxable compensation to you. If the class was income to you, then your reimbursement to the company has to come from after-tax income – if you paid it with pre-tax income, you would be avoiding the tax on the class (i.e., you would wind up down $1000 pre-tax but up the class, but you should actually be down $1000 pre-tax, down the tax on $1000, and up the class). On the other hand, if the class was not income to you, you can pay for it out of pre-tax income – you received a class, received $1000, and then paid $1000 – the class was not income and the payments cancel out; voila, no income.
In my previous answer, I gave reason to believe the class might not be income to you, which if true means you should pay the reimbursement out of pre-tax dollars.
All the same caveats apply – I am not your lawyer, and these are more like doodles than legal advice. I’ve presented more details so you’ll know what kind of answer you’re looking for here.
posted by grobstein at 1:31 PM on March 9, 2011
Having seen other situations like this play out, I would normally expect it to be post-tax. However if it's a relatively small company they might not even have thought about this themselves yet. Why not negotiate in every way you can to just trade the vacation hours for the tuition being written off? That's more likely to work the closer you are to the 18 months, and the more sympathetic the circumstances in which you leave I would think.
posted by crabintheocean at 2:47 PM on March 9, 2011
posted by crabintheocean at 2:47 PM on March 9, 2011
This thread is closed to new comments.
This is guesswork, though -- I know very little about your circumstances and only a little more about relevant law and accounting practices. IANYL etc. If the answer is important, you should try to get it answered auhoritatively -- take it to your payroll dept or something.
posted by grobstein at 7:48 AM on March 9, 2011