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Taxability of Employee Tuition Benefits

Quick Facts about Tuition Taxability:

  • If you are utilizing tuition benefits for undergraduate courses, your courses are non-taxableyou do not need to continue reading this page.
  • If you are utilizing tuition benefits for graduate or non-credit courses, your courses may be taxableyou should continue to read.
    • If your courses are deemed taxable, you will receive a tax break up to $5,250 each calendar year (January 1 – December 31). Once you exceed that amount ($5,250) of graduate tuition benefits, then the Office of Total Rewards will contact you regarding the amount of taxable tuition you owe.
  • Dependent Child Tuition Benefits are non-taxable.

Determining if your courses are taxable*:

  • 1. Is the graduate/non-credit course required to meet the minimum education requirements of my position?
    • If yes – taxable
    • If no – read next question
  • 2. Is the graduate/non-credit course part of a program of study that will qualify me for a new trade or business?
    • If yes – taxable
    • If no – read next question
  • 3. Will the graduate/non-credit course maintain or improve skills required, appropriate or helpful to my current position?
    • If yes - non-taxable
    • If no – read next question
  • 4. Is the graduate/non-credit course required as a condition to retain my current position or pay rate?
    • If yes - non-taxable
    • If no - taxable

*For the course to qualify as a tax exempt job-related course, the answers to the first two questions must be “No”, and the answer to either the third or fourth question must be “Yes”.

Additional Details

Graduate tuition assistance benefits and/or tuition reimbursement for non-credit courses that exceed $5,250 in a calendar year are taxable wages unless the course satisfies the requirements for a tax deductible job-related course under IRS rules. Generally, a job-related course will satisfy these IRS requirements if it maintains or improves skills for the individual’s present job, or if the course meets the employer’s express requirements for retaining the job, and the course is not part of a program that will qualify the individual for a new trade or business.

If you believe that your proposed graduate level course(s) and/or non-credit course(s) satisfies the requirements for a tax deductible job-related course under IRS rules:
Complete the “University of Rochester Graduate Tuition Waiver/Reimbursement Tax Exemption Form” on pages 5 of the Employee Tuition Waiver/Reimbursement application. (Employees can use the information above or the flowchart on page 4 of the application to determine whether or not a course is taxable).

For taxable tuition benefits:
Applicable Federal and State income taxes and FICA taxes (approximately 39.27% of the taxable tuition amount) will be deducted from the employee’s paycheck when the waiver is approved or the reimbursement is paid to the employee. In addition, the taxable income will be reflected on the W-2 for the calendar year when the actual tuition benefit is posted to the student’s account or reimbursed to the employee.

Process for Calculating Tuition Benefit Taxes
  • 1. Add up the amount of tuition benefits you are receiving for the graduate course and/or non-credit courses you will be taking during the winter/spring semester/quarter.
    Example: 2 courses for $3,330 each- $3,330 + $3,330 = $6,660

  • 2. Deduct $5,250 from the total amount of graduate tuition benefits for the semester/quarter. This new total is the taxable amount of your employee tuition benefits for the current semester/quarter.
    Example: $6,660 - $5,250 = $1,410.00

  • 3. Multiply the taxable amount by 39.27% (the approximate rate of tax for Federal and State income taxes and FICA taxes). This new total is roughly equal to the amount of taxes that will be deducted from your paycheck(s) during the current semester/quarter.
    Example: $1,410 x 39.27% = $553.71 (Estimated deduction from your paycheck)

  • 4. Then, if you are taking more courses in another semester (summer or fall), add up the amount of tuition benefits for the graduate courses you will be taking during that semester/quarter.
    Example: 2 courses for $3,330 each- $3,330 + $3,330 = $6,660. If you have already received graduate tuition benefits over $5,250 during the calendar year, this entire total is the taxable amount of your employee tuition benefits for that semester/quarter.

  • 5. Multiply the taxable amount by 39.27% (the approximate rate of tax for Federal and State income taxes and FICA taxes). This new total is roughly equal to the amount of taxes that will be deducted from your paycheck(s) during that semester/quarter.
    Example: $6,660 x 39.27% = $2,615.38 (Estimated deduction from your paycheck)
Process for Notifying Employees of Tuition Benefit Taxes

Multiple times during each semester, we run reports to determine which employees are taxable. If you are taxable and have received graduate tuition benefits over $5,250, the Office of Total Rewards will email you prior to any deductions being taken from your paycheck.

  • 1. If there are enough pay periods remaining prior to the next semester starting or the calendar year ending, then your email will detail the amount of pay periods you will see a deduction and the amount of the deduction.
    If you prefer to spread out the taxes for additional pay periods (if possible) or pay in a lump sum, please call the Office of Total Rewards at 585-275-7013.

  • 2. If there are NOT enough pay periods remaining prior to the next semester starting or the calendar year ending, then your email will detail the total amount of taxes that you owe and will include a due date and instructions for remitting payment to the Office of Total Rewards as a lump sum.