- Tuition waivers are not taxable for employees for education below graduate level.
- However, for employees enrolled in graduate level courses, tuition waivers may still be non taxable if the education helps to maintain or improve employment skills, or is required to keep the job, salary level, or the current status.
- If the education enables the employee to meet the minimum qualifications for a job, or qualify for a new trade or business, then the tuition waiver is taxable.
Withholding of Taxes for Employee Tuition Waivers
The determination of taxability of a tuition waiver for graduate level courses as described above is left to the employee since the value of the tuition waiver is not included in the employee’s gross income and is not reported as wages.
Taxability of Tuition Waivers to Employee Spouses
Tuition waivers are not taxable for employee spouses for education below graduate level based on the student’s classification at the time of registration.
Taxability of Tuition Waivers to Employee Domestic Partners
The value of tuition waivers afforded to domestic partners for education at any level is taxable to the University employee.
Withholding of Taxes for Employee Spouse & Domestic Partner Tuition Waivers
The value of the tuition waiver, if applicable, will be included in the employee’s gross income and reported as wages or other compensation on the employee’s W2 and is subject to employment taxes.
- Taxable amounts will be transmitted through the State Payroll System.
- These taxable amounts will increase the employee’s Federal, State and FICA taxable income and will generate additional withholding assessments against gross payroll wages.
- These payments are not payroll payments, but serve to increase taxable income and are defined as Wages-in-Kind.
- The Employee’s Earnings Statements and the annual W-2 Statements will therefore reflect taxable income and withholding amounts related to both payroll wages and wages-in-kind.
Tax withholding for employee tuition waiver benefits will be processed on the pay dates below:
- For waivers posted between November 1st and April 15th, withholding will occur on 5/20;
- For waivers posted between April 16th and August 15th, withholding will occur on 9/20;
- For waivers posted between August 16th and October 31st, withholding will occur on 12/05.
In general, inclusion of this tuition waiver benefit as one lump sum to wages is in compliance with rules set forth by the Internal Revenue Service. However, should the lump sum be large enough to cause a substantial tax withholding in decreasing the employee’s pay check, the University may consider allocating this lump sum into different pay periods.
Hence, if an employee’s taxable benefit amount is greater than the employee’s regular gross semi-monthly payroll amount, the taxable benefit amount will be split between 2 pay periods: the designated pay date shown above and the next following pay date.
Please consult with your tax adviser if you have further questions.