Payroll Tax Guideline 101: Educational Assistance to Employee's Relatives

Reviewed 10/1/2014

Scope

This guideline addresses the tax reporting requirements applicable to educational assistance provided by the University to employees’ relatives. Educational assistance includes tuition waivers and tuition remission.

Graduate Courses

Graduate level educational assistance provided to employees’ relatives must be promptly reported to the Campus Payroll office. Graduate level educational assistance provided to employees’ relatives generally results in taxable wages to the employees equal to the fair market value of the educational assistance. The Campus Payroll office is required to do the necessary payroll tax withholding and reporting.

Example

In 2006, Professor A’s wife, Mrs. A, decides to enroll in a graduate level computer science course. The regular tuition for the course is $300 and the total fees are $200. Professor A completes a tuition waiver form and gets Mrs. A’s tuition waived. Mrs. A must pay only the $200 of fees. As a result, Professor A has taxable income of $300, the amount of Mrs. A’s tuition waiver.

Undergraduate Courses

Undergraduate level educational assistance provided on a nondiscriminatory basis to employees’ relatives is generally tax free under a provision allowing an exclusion of the benefit from the employees’ wages. The authority for this rule is Internal Revenue Code Section 117(d). Employee relatives eligible for this provision include the employee’s spouse and dependent children.

Example

In 2006, Professor X’s husband, Mr. X, enrolls in an undergraduate computer science course. The regular tuition of the course is $300 and the total fees are $200. Professor X completes a tuition waiver form and gets all the tuition waived. Mr. X must pay only the $200 of fees. As a result of the exclusion provision for undergraduate level courses, Professor X has no taxable income from the tuition waiver granted to Mr. X.