Training expenses: The tax benefits for dentists and dental practices
Does it pay to learn? You bet. In this week's Dental CPA Blog post, Drew Hinrichs, CPA, and James Zenk, JD, CPA, look at the tax savings of training for dentists and dental practices.
Working in the dental industry is rewarding work. We all know that. Keeping up with the constant changes, updates, and new training can be daunting, especially when racking up your valuable CE credit. Keeping your staff training up to date is important, too! If you reimburse employees for these expenses, you and your employees may be able to save valuable tax dollars.
Offer a fringe benefit
Payment of an employee’s expenses usually results in taxable wages subject to income and payroll taxes. However, reimbursements and direct payments of job-related education costs are excludable from workers’ wages as working condition fringe benefits. Furthermore, you can deduct these costs as employee education costs (as opposed to wages), so you don’t have to withhold income tax or pay payroll taxes on them.
To qualify as a working condition fringe benefit, the education expenses must be ones that employees would be allowed to deduct as a business expense if they’d paid them directly and weren’t reimbursed. Basically, this means the education must relate to the workers’ occupations and not qualify them for new jobs. There’s no ceiling on the amount your workers can receive tax-free, and you can classify education costs as not subject to payroll taxes if the IRS considers the expenses to be working condition fringe benefits.
Establish a program
Another approach to reimbursing education costs in a tax-efficient manner is to establish a formal written educational assistance program. These programs can cover both job-related and non-job-related education. Assuming it meets eligibility requirements, such a program can allow employees to exclude from income up to $5,250 (or an unlimited amount if the education is job related) annually in education reimbursements for costs such as:
- Fees
- Books
- Equipment and supplies
The IRS, however, won’t allow reimbursement of materials that employees can keep after the courses end (except for textbooks). You can deduct up to $5,250 (or an unlimited amount if the education is job related) of education reimbursements as an employee benefit expense. And you don’t have to withhold income tax or pay payroll taxes on these reimbursements.
Keep them on board
If your practice has employees who want to take their professional skill sets to the next level, don’t let them go to a competitor to get there. By reimbursing education costs as a fringe benefit or setting up an educational assistance program, you can keep your staff well trained and evolving toward the future and save taxes, too. Feel free to contact us about how to ensure you’ll enjoy the tax advantages of doing so.
Andrew Hinrichs, CPA, and James Zenk, JD, CPA, are partners at HinrichsZenk+Pesavento (HZP), a dental CPA firm. Located in the suburbs of Chicago and Kansas City, HZP works with dentists around the country. Tax planning opportunities, practice growth, and creative retirement planning are key focus areas. To set up a consultation with an HZP advisor, call HZP's Kansas City office at (913) 681-1350 or Chicago office at (708) 447-8399.
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