| Generally speaking, employees often undergo some education or vocational studies while working and hope to receive employer reimbursement because their studies often benefit their job.
If your business reimburses your wife for her education expenses without income inclusion, then only the income, net of the education expenses, is being passed from your S corporation to your personal income tax return for taxation. This effectively reduces your wives education costs by using before-tax dollars.
However, it is important to note that the only "eligible education expenses can be paid by your business for your wife without income inclusion.
Thus, if the education received is relevent to your wife's "responsibilities and duties by improving her skills to perform her job and does not qualify her for a different trade or business," then the business may pay for the expenses without including the benefit in her wages.
The IRS has stated that "if the education allows your spouse to be eligible for a different business or to meet the minimum requirements for qualification in a trade or business, then the cost of the education would have to be added to her reported wages."
The implication here is that there is no effective benefit for the S corporation paying for your wive's education as the entire amount paid would have to be reported on her wages as income subject to S/E taxes along with federal and state taxes.
Thus, in order to safely deduct these vocational expenses for your wife for tax purposes, you must ensure that the course work would be both relevent to her job and will benefit your wive's job performance in the area which she contributes to the business.
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