My husband's employer has provided a great deal of education assistance this year, but the amount they've contributed has exceeded the federal tax-free limit of $5250. Any amount over that is subject to tax, and so they are going to estimate the tax and then split it equally between the remaining 2009 paychecks.
We're already pretty tight financially right now, especially since we're having the $275/mo extra withheld to cover self-employment taxes, the $500/mo increase in minimum credit card payments (effective since August), and the auto insurance renewals ($500 in Oct & another $400 in Nov)... losing an extra $300 would be really tough!
We'd possibly have to dig in to the emergency fund to cover the shortage for the time being. We'll have to adjust our withholdings, perhaps by stopping the extra withholdings on the self-employment money, and then just take care of it when we go to file our taxes in the spring.
It's a juggling act. We need money to pay our bills now, and we should be in a better financial position in the spring, but the economy is still rather precarious - so who knows if we'll even still have our jobs then. But at the same time, I don't want to withhold too little now and end up having to pay penalty & interest when we file our taxes.
I think we'll be able to get most of it back when we do our tax returns, so I really need to find out more information on the tax implications of employer-provided education assistance. I'm hoping that we can claim a tax deduction for some of the tuition and fees that the employer paid (only the amount in excess of $5250, so just what we're getting taxed on).
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