Tuition Waiver Benefit Taxes

By law, some uses of the tuition waiver benefit are taxed. Please review this page to determine if you'll pay taxes on this benefit.

 

Will my tuition benefit be taxed?

Please review the chart below to see if your tuition benefit will be taxed.

 
Who's using the benefit?
What type of classes are you/your dependent taking?
 
Tax Impact
Dependent Employee Undergraduate Graduate Subject to taxes? Why?
X   X   No Any amount provided is excludable from employee wages. It is not reportable by the employer and is not taxable to the employee. Pursuant to Internal Revenue Code section 117(d), "Qualified Tuition Reduction"
  X X   No Any amount provided is excludable from employee wages. It is not reportable by the employer and is not taxable to the employee. Pursuant to Internal Revenue Code section 117(d), "Qualified Tuition Reduction"
  X   X Not taxed when benefit amount is less than $5,250 per calendar year; taxed when benefit amount exceeds $5,250 per calendar year The benefit in excess of $5,250 is taxable to the employee. It is reportable on Form W-2 as wages, subject to applicable income tax withholding and payroll taxes. It is not considered salary from which retirement contributions to the mandatory retirement plans can be made (i.e., PERA's defined benefit plan or CU's 401(a) Retirement Plan), although it is "includable compensation" from which elective deferrals can be made for the following elective plans: PERA's 401(k) Plan, the CU 403(b) Voluntary Retirement Plan and the PERA 457(b) Plan.
X     X Yes The benefit is taxable to the employee. It is reportable on Form W-2 as wages, subject to applicable income tax withholding and payroll taxes. It is not considered salary from which retirement contributions to the mandatory retirement plans can be made (i.e., PERA's defined benefit plan or CU's 401(a) Retirement Plan), although it is "includable compensation" from which elective deferrals can be made for the following elective plans: PERA's 401(k) Plan, the CU 403(b) Voluntary Retirement Plan and the PERA 457(b) Plan.

A note for dependents of same-gender domestic partnerships:

If a child/spouse of a same-gender domestic partnership is not eligible to be claimed as a dependent on the employee's federal individual income tax return, the tuition benefit is taxable to the employee.

This will be reported on the employee's Form W-2 as wages, subject to applicable income tax withholding and payroll taxes. It is not considered salary from which retirement contributions to the mandatory retirement plans can be made (i.e. PERA's defined benefit plan or CU's 401(a) Retirement Plan), although it is considered "includable compensation" from which elective deferrals can be made for the following effective plans: PERA's 401(k) Plan, the CU 403(b) Voluntary Retirement Plan and the PERA 457(b) Plan.

How much will I be taxed?

Tuition assistance that falls under taxable categories will be subject to Federal (25%) and State (4.63%) and 7.65% of FICA (Social Security and Medicare) taxes. This money will be taken out of employees' paychecks.  Please refer to the “Billing, Fees, Cost” section of our Frequently Asked Questions (FAQ) for specific dates of taxation.