Tuition Remission Tax Information

The Internal Revenue Service (IRS) and the State of California Franchise Tax Board determine the taxability of certain tuition benefits received by an employee and, his/her dependent(s) or Registered Domestic Partner (RDP). As the following table illustrates, taxation is based upon the student-to-employee relationship and the course level of the classes taken. Under certain conditions, IRS does allow an exemption of $5,250 per year per employee (Section 127 of Internal Revenue Code. Note: IRC Sec. 127 only applies to employees; it does not apply to spouses, dependents or RDPs [unless they are ALSO employees]).

Course Level Student is Employee Student is Spouse or Dependent Child of Employee Student is RDP
Undergraduate, Graduate Research Analyst, Certificate Programs and non-Credit Classes Below the Graduate Level Not Taxable Not Taxable Federal - Taxable
State - Not Taxable
Graduate
(see details below)
Federal - Taxable
State - Taxable
Federal - Taxable
State - Taxable
Federal - Taxable
State - Taxable
Exemption Amount $5,250 annually in calendar year (Jan-Dec). 0.00 0.00

Taxation schedule

In accordance with applicable federal and state tax laws, USF will withhold taxes from the employee's gross wages according to the following schedule. The total taxable tuition remission benefit amount will be divided by the number of months listed below. The IRC Sec. 127 $5,250 qualified exemption (if applicable) will be applied during the first tuition application terms in the year until the entire $5,250 exemption is exhausted. Adding and/or dropping a course will be integrated into the billing cycle(s) on a monthly basis and is contingent upon timely completion of necessary paperwork. If the paperwork is not received in the appropriate department (Enrollment Management or Office of Human Resources) in a timely fashion, the amount of the tuition benefit will be taxed over a shorter period of time thereby increasing the tax withholding amounts and decreasing the employee's net pay. Any and all adjustments will be made in a payroll period dedicated to adjustments (as detailed on the chart below).

Term #Months Month 1 Month 2 Month 3 Adjustments
Intersession 1 Jan N/A N/A  
Spring 3 Feb Mar April May
Summer 3 June July Aug Sep
Fall 3 Oct Nov Dec Dec

After the census date each term, and based upon the enrollment on that date, the Payroll Office will send an email to the employee outlining the tax impact for the pertinent payroll integration period. Employees who do not receive this email are responsible for notifying the Payroll Office that they should be taxed. Tax periods cannot be extended past the term noted on the above table for any reason.

If an employee's gross pay is not sufficient to cover the tax liability, he/she will be required to pay the taxes owed prior to the first day of classes; otherwise, the student receiving these tuition remission benefits will be administratively withdrawn.

If an employee terminates employment within a taxing period, he/she will be required to pay the taxes owed or disenroll from classes prior to the termination date.

Questions related to the taxable remission amounts should be directed to the Payroll Office at x2837.

Tuition Remission Taxation Examples

Case 1: Sally is a System Analyst working in the Information Technology Services (ITS) Department. She takes 12 credit hours of undergraduate coursework in the Fall Term. She applies for and is approved to receive the Tuition Benefit. The tuition benefit received is $12,000. Because the course work is undergraduate, Sally is not taxed.

Case 2: John is Sally's youngest son (from Case 1). John is taking undergraduate level classes for $5,000 in the Fall Term. This benefit is not taxable. In contrast, Sally's oldest son Tom is taking graduate level classes for $12,000 in the Fall Term. Therefore, Sally's gross taxable income will be increased by $4,000 per month in October, November, and December, and net pay will be reduced by $880.00 per month.

Case 3: Michael is an Adjunct Faculty member and is currently not teaching in Summer Term. Michael can use the Tuition Remission Benefit, but he does not have a gross wage from a current assignment. His son takes 3 credit hours of graduate work (taxable) and the tuition benefit received is $2,600. Michael must pay the tax directly at the yearly taxation rate, approximated at 42%. Michael must pay $1,092 directly to Payroll Services before the first day of classes.

Taxation Integration Calendars

2018 Tuition Remission Taxation Integration Calendar

2017 Tuition Remission Taxation Integration Calendar

2016 Tuition Remission Taxation Integration Calendar

Questions?

Please email tuitionremission@usfca.edu with any questions about this benefit.