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Tuition Remission: Taxation

Tuition Remission Taxation

Courses taken through the tuition remission benefit may be subject to federal, state, and/or local income tax. In the event that benefits under this policy may be deemed taxable income, the University will withhold the applicable taxes from the employee’s paycheck(s) and report the imputed income on the employee’s W-2. The employee will not be reimbursed by the University for any taxes owed. The University will use the following Internal Revenue Service (IRS) guidelines to determine the taxability of the tuition remission benefit.

A tuition reduction for education below the graduate level is tax free if the reduction is provided by an educational institution to (and for the education of):

  1. A current employee;
  2. A former employee who retired or left on disability;
  3. A widow or widower of an individual who died while an employee;
  4. A widow or widower of a former employee who retired or left on disability;
  5. A dependent child or spouse of any person listed in (1) through (4) above. (A dependent child of divorced parents is treated as the dependent of both parents.)

Based on these guidelines, tuition remission for most undergraduate courses for employees, eligible spouses, and eligible dependent children is not considered taxable income for the employee.

If tuition remission is granted to an employee’s eligible child when the child is not considered a dependent child for federal, state, and/or local tax reporting purposes, the value of the tuition remission is taxable to the employee. In this case, the University will withhold the applicable taxes from the employee’s paycheck(s) and report the imputed income on the employee’s W-2. The University may ask the employee to provide documentation to verify the dependent status of the eligible child. A copy of the employee’s tax filing for the previous tax year may be used as documentation.

The IRS guidelines consider tuition remission for graduate level courses to be taxable for federal income tax purposes, unless the education meets at least one of the following two tests:

  1. The education is required by your employer or the law to keep your present salary, status, or job. The required education must serve a bona fide business purpose for the employer.
  2. The education maintains or improves skills needed in the employee’s current work.

Tuition remission for graduate level courses for employees will be considered taxable and will be taxed and reported as taxable income unless the employee completes the Graduate Tuition Remission Form documenting that the education meets one of the two IRS tests described above. . The Office of Human Resources has final responsibility for determining if the employee’s request meets at least one of the two IRS tests.

Tuition remission for graduate level courses for eligible spouses and children is considered taxable income. Therefore, the University will withhold the applicable taxes from the employee’s paycheck(s) and report the imputed income on the employee’s W-2. Employees may be able to deduct some of these expenses on their personal income tax return.

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