Tuition Taxability


IRS Tax Withholding (from Employee Paycheck)

When using the tuition waiver, the following instances are considered taxable by the Internal Revenue Service. They will result in a lump sum withholding for taxes to be deducted from the employee’s paycheck at the end of the session in which the course was taken.

 

This table provides information about tuition taxability by beneficiary and student type.
Waiver Recipient Admitted as Undergraduate Student Admitted as Graduate Student Other
TAX RATE FOR 2016: 37.55%
Employee Amount waived is not taxable Taxable if course is a Sport, Game, or Hobby that is not part of a degree plan See information regarding cases where the IRS Maximum Exclusion may apply.
Spouse Amount waived is not taxable Amount waived is taxable
Dependent Child: Full-time Amount waived is not taxable until the calendar year in which the student reaches age 24. Amount waived is taxable
Dependent Child: Part-time Amount waived is taxable Amount waived is taxable
Domestic Partner Amount waived is taxable Amount waived is taxable
Domestic Partner Child Amount waived is taxable Amount waived is taxable

Paycheck Withholding Schedule:

  • FALL semester tax deduction will be taken from the employee’s paycheck on Nov. 30th
  • SPRING semester tax deduction will be taken from the employee’s paycheck on Apr. 30th
  • SUMMER semester tax deduction will be taken from the employee’s paycheck on Aug. 31st
  • IRS Max Exclusion for Grad Student Employees: tax deduction for amounts waived exceeding $5,250 of total tuition costs for the tax year will be taken from the employee’s final paycheck of year (last paycheck in December).

*Employees are highly advised to budget accordingly for federally required income tax to be withheld from their paycheck.*


IRS Maximum Exclusion: Internal Revenue Code Section 127 allows employers to provide up to $5,250 of educational assistance per employee per tax year (Jan 1 – Dec 31) on a tax-free basis for graduate level or advanced degree programs. Therefore, an employee who is registered as a graduate student and receives the tuition reduction benefit will be taxed on any waived amount that exceeds $5,250 in a tax year. The taxes will be withheld from the employee’s last paycheck of December. Employees are advised to monitor their annual tuition costs and budget accordingly for federally required tax withholding from their paycheck.