Based on IRS Publications 508 (for tax year 2002) and 15-B, the tax-free status of up to $5,250 for employer provided educational assistance benefits was extended through 2010 for undergraduate and graduate level courses for employees and only undergraduate courses for spouses and dependent children. Undergraduate and graduate tuition remission for employees in excess of $5,250 is required to be included in gross income and therefore subject to FICA and income tax withholding. All graduate tuition remission benefits for spouses and dependent children as well as undergraduate remission for them in excess of $5,250 is also subject to FICA and income tax withholding.
Once the TU Office of Human Resources receives confirmation of the total amount of tuition remission benefits received by an employee or their spouse/dependent during a specific semester or session, the taxable amounts are forwarded to the State?s Central Payroll Bureau (CPB). CPB then prorates the total taxable amount over the available pay periods remaining in the semester/session adding them to the taxable wages for that period. The net effect is a reduction in the employee?s pay due to the increase in the amount of taxes paid. Taxes are withheld according to the following guidelines:
* Federal Income Tax- flat 25% rate
* State Income Tax- employee?s current rate
* FICA Tax – usually 7.65%
While the taxation on tuition remission benefits may be a surprise to many, especially later in the tax year once the $5,250 limit is reached, individuals may want to consider adjusting their W4 allowances to offset the effect of the additional tax on their net income.
Questions should be directed to Dave Curtis, x4-6018 or {dcurtis@towson.edu}, or Gail Price, x4-6017 or {gprice@towson.edu}.
