Department of Human Resources

Tax Reporting and Withholding Requirements for Tuition Remission and Tuition Exchange Benefits

 

Tax Reporting and Withholding Requirements for Tuition Remission and Tuition Exchange Benefits

Purpose

Seton Hall University (“Seton Hall” or “University”) provides tuition remission benefits for eligible employees, their spouses and/or dependent children for undergraduate and graduate level study at the University. The University also provides tuition exchange benefits under the Tuition Exchange Scholarship Program. This policy addresses the tax reporting and withholding requirements applicable to these education-related financial assistance benefits provided by the University to employees, their spouses and/or dependent children for undergraduate and graduate level course work.  

Scope
This policy applies to all University employees who are receiving tuition remission or tuition exchange benefits and/or whose spouses and/or dependent children are enrolled in undergraduate or graduate level courses under the University’s tuition remission or tuition exchange programs.

Policy
The Internal Revenue Code (“IRC”) contains several provisions that allow the University to provide financial educational assistance to its employees and their spouses and dependent children, but with different limitations and tax implications depending on the level of study.  

  1. Undergraduate course work
    Under Section 117 of the IRC, the University may offer a reduction of tuition charges to employees, their spouses and dependent children. As long as that tuition reduction is for undergraduate education, it will be tax-free and excluded from an employee’s taxable wages. Therefore, Seton Hall will not add to its employees’ taxable wages the financial value of the tuition remission or tuition exchange benefit provided for undergraduate level course work for employees, their spouses and/or dependent children.
  2. Graduate course work
    1. For employees up to $5,250/year tax-free
      Under a separate section of the IRC, Section 127, the University may provide its employees with tuition remission for graduate course work, on a tax-free basis, up to $5,250 per employee, per year. Therefore, Seton Hall will not add the financial value of the tuition remission for graduate course work that does not exceed $5,250 per year to its employees’ taxable wages.
    2. For employees who exceed the $5,250/year
      Section 132 of the IRC contains the only exception to the taxability of tuition remission to an employee at the graduate level in excess of $5,250 per year. This exception applies to courses taken by Seton Hall employees when the courses are job-related and meet all of the requirements set out in Part 26, Section 1.162-5 of the federal tax regulations.

      Under Section 1.162-5, in order for tuition remission in excess of $5,250 to be excludable from income and thus not subject to tax, the course must be required to maintain or improve the employee’s job skills or meet the express requirements set by the University, or by law, for the employee to retain his/her employment. The course cannot be used to meet the minimum educational requirements for the job nor can it qualify the employee for a new trade or business.

      For a course to be evaluated as non-taxable under this section, the employee must provide Human Resources with a Job Related Graduate Tuition Remission Form, approved by his/her supervisor.
    3. Graduate assistantships
      For graduate students engaged in teaching or research, there will be no tax imposed on tuition remission for graduate courses as long as the tuition remission is not payment for services. Typically payment for services is in the nature of a stipend and is taxable as income.
    4. Spouses and dependent children excluded
      Unlike Section 117, Section 127 of the IRC does not permit the University to provide the spouses or dependent children of employees with tuition remission for graduate level course work on a tax-free basis. Therefore, the value of the tuition remission provided to spouses and/or dependent children of employees for graduate level course work under the Tuition Remission policy will be added to employees’ taxable wages.
  3. Calculating taxability of educational financial assistance
    The monetary value of tuition remission received by employees for graduate level course work during the academic year (fall through summer semesters) in excess of the annual excludable amount of $5,250 for graduate level course work must be added to the employee’s taxable wages in the calendar year of the last semester of the academic year, except for any amount which is excludable as job-related under Section 1.162-5 of the federal tax regulations. The monetary value of tuition remission received by employees’ spouses and/or dependent children for graduate level course work must be added to the employees’ taxable wages in the calendar year of the last semester of the academic year. The increase in taxable wages also increases the taxes withheld and reduces net pay. The taxes will be withheld from all paychecks from August through December. In cases where the taxes cannot be withheld from all paychecks—due to an unpaid leave of absence, retirement, or death—the University will report the taxable income to the government using a Form 1099.

    As a courtesy, the Payroll Department will notify employees via e-mail of the amount of their taxable education-related income and the pay periods affected. Every attempt will be made to notify employees in advance of the first pay in which the taxes will be withheld. All employees are encouraged to track their education-related financial benefits for the year and plan accordingly.
Responsible Offices
Related University Policies

The University reserves the right to amend this policy at any time.

This policy was amended and approved by Monsignor Robert Sheeran, President, and the Executive Cabinet on February 5, 2009.

Effective date of this amended policy is May 12, 2009.

Effective Date

May 12, 2009

 
 
Contact Us

Department of Human Resources
(973) 761-9177
Fax (973) 761-9007
humanres@shu.edu
Martin House

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