Questions and Answers about Taxability of Tuition Benefits

Q. Are tuition benefits for undergraduate course work taxable?

A. No. Under section 117(d) of the IRC, if a college or university employee (or the spouse or dependent child) receives a waiver for undergraduate education which constitutes a qualified tuition reduction, the amount of the tuition waiver is excludable from the employee's gross income.

Q. When will tuition benefits for graduate course work be treated as excludable from taxable income to the employee?

A. Per the CUA Section 127 Educational Assistance Plan, regular full and regular part time employees may (upon completion of their initial evaluation period) receive up to $5,250 of tuition remission in a given calendar year for graduate coursework tax free.

Q. Is there any way that tuition assistance for graduate course work over the $5,250 per year benefit level might qualify as tax free under the tax code?

A. Yes. Educational expenses may be considered excluded from income (under narrow circumstances) as a working condition fringe benefit under section 132 (and 162) of the Internal Revenue Code if certain conditions are met. The rules are contained in 26 CFR Section 1.162-5. For more on this see the Office of General Counsel web page or Section 12 (Employer Provided Educational Assistance) of IRS Publication 970. The employee would need to claim this as a deduction on his/her income tax return.