When applying for tuition remission, it is important to understand the tax implications. Taxable tuition remission may affect the paycheck of the employee.Please see the Tuition Tax Chart.
Courses taken by the employee/retiree:
- Undergraduatetuition remission is non-taxable to the employee/retiree.
- Graduate tuition remission is usually taxable.
- Per IRS regulation, e ach course in the program must be evaluated individually for qualification as a working condition benefit. The education must meet at least one of the following tests:
- The education is required by the employer or by law for the employee to keep their present salary, status, or job. The required education must serve a bona fide business purpose of the employer.
- The education maintains or improves skills needed in the job.
However, even if the education meets one or both of the above tests, it isn't qualifying education if it:
- Is needed to meet the minimum educational requirements of the employee's present trade or business, or
- Is part of a program of study that will qualify the employee for a new trade or business.
- Graduate level tuition waived which does not qualify as a working condition fringe benefit is subject to the tax rates below for any value above the IRS limit of $5,250 in a calendar year.
Courses taken by eligible spouse/dependents:
- Undergraduate:To be considered non-taxable, the employee/retiree must claim the student as a dependent on their federal tax return for the year in which tuition remission is granted. Please review the tuition tax chart.
- Graduate: The full amount of tuition remitted is taxable to the employee. Taxes will be withheld from the employee’s paycheck at the tax rates below.
Tax Rates
If tuition remission is determined to be taxable to the employee, taxes will be withheld over a series of paychecks during the semester the benefit is received. The employee will be notified by Payroll of the taxable amount of the tuition waived each semester. Employee’s paychecks are not deducted for the amount of tuition, rather they are deducted for only the taxes on the amount of taxable tuition waived. Employees can check their billing statement to monitor the amount of tuition waived each semester. Tuition taxes will be withheld at the following rates:
- Federal - 22%
- State/Local – Your current Maryland rate
- FICA (Social Security & Medicare) 7.65%
