Scholarships provided to children of employees by a private foundation established by their employer are not considered taxable income to the employees only if the employer adopts an objective, nondiscriminatory program with certain guidelines.
- An independent scholarship committee must select all children receiving the educational grant. Former employees of the employer or the foundation are not considered independent.
- Eligibility for the scholarships may be restricted to children of employees who have been with the company for a minimum of three years, but eligibility may not be related to the employee’s position at the company.
- Once the scholarship is awarded, it cannot be terminated if the parent leaves their job with the employer (regardless of the reason for termination).
- Scholarship decisions must be based on academic performance, aptitude tests, teacher recommendations, financial needs, and conclusions drawn from personal interviews.
- Recipients must be free to use their educational grants for courses that do not benefit the employer.
- The scholarship program cannot be used to recruit employees or entice employees to stay at the company.
- The child receiving the educational grant cannot be required to work for the company in the future.
- The number of scholarship awards in a given year cannot exceed 25% of the number of employees’ children who were eligible. For example, if 100 children were eligible then the maximum number of grants is 25.