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Your employer pays for the MBA – but where’s the catch?

It seems like a smart idea to get an employer to pay for your MBA tuition but there are a few responsibilities to keep in mind. Are you willing to stay with the employer for the number of years he might demand from you? Have you got the stamina to finish the MBA course and put in enough work to receive marks that will be considered good enough by your employer? And what happens with the tax?

These are the main rules to keep in mind:

1.     If your employer agrees to pay for your MBA, he might only do so after all the courses have been completed. So you still will have to lay out the money upfront.

2.     Some employers might even ask you to achieve a certain grade point average before reimbursing you with the costs, so read the agreement carefully before signing it.

3.     Most employers will ask you to sign that you will stay with them for a number of years afterwards. Otherwise you might have to reimburse them for their investment.

4.     If you accept tuition reimbursement from an employer, this might be considered as an additional income and might be taxed in that way. Always check with your accountant. In the US, the Tuition Tax Break, also known as Section 127, expired at the end of 2010. The Tax Break had allowed employees to receive up to $5,250 per year in tuition reimbursement from employers without taxation. From 2011 it is again considered taxable income.

Apart from this there have been some other interesting court rulings in the last few years surrounding the Master of Business Administration. Some have been positive for the students, others for the employer.

A major breakthrough for the rights of students was achieved in the US in 2009: A nurse who had attended an MBA course, paid the tuition herself and then deducted the costs from her taxes, was supported by a court ruling. Her actions were regarded as legal.

In Germany, the court ruled (BAG, 3 AZR 621/08) for the employer. It announced it as legal for the employer to demand his tuition money back if the employee leaves the company before an agreed period of time. However, this is only valid if there was a contract signed beforehand which stated the rules clearly. The German law also states that the responsibility to stay with the company can usually not last longer than five years.

In a different ruling (BAG, 3 AZR 900/07) the German court ruled that educational training up to one month can demand additional six months in the company, up to two months one year, three to four months up to two years and from half a year to a year up to three years. If courses take more than two years, the time required to stay at a company might be extended up to five years.



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