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: 34.55% (Last Update 2018)
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

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. Employees are advised to monitor their annual tuition costs and budget accordingly for federally required tax withholding from their paycheck.