Tuition Remission Tax Information
The taxability of certain tuition benefits received by an employee and their spouse, dependent(s) or Registered Domestic Partner (RDP) is determined by both the Internal Revenue Service (IRS) and the State of California Franchise Tax Board. As shown in the table below, taxation depends on the relationship between the student and the employee, as well as the course level.
The IRS provides an exemption of $5,250 per year per employee (IRC Sec. 127). This exemption applies only to employees who are using the tuition benefit; it does not extend 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 based on the following schedule. The total taxable tuition remission benefit amount will be divided by the number of pay periods (3 for monthly paid employees or 6 for semi-monthly paid employees) and that amount is added to the employee’s gross wages.
When applicable, the IRC Sec. 127 $5,250 qualified exemption will be applied during the first eligible tuition term in the calendar year until the entire $5,250 exemption is exhausted.
Adding and/or dropping a course will be integrated into the taxation 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 (ie. Strategic Enrollment Management) 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. If needed, any additional adjustments will be processed during a designated payroll period (general timeline is below). For more detailed payment schedules (monthly and semi-monthly) review the 2025 Integration Calendar.
| Term | #Months | Month 1 | Month 2 | Month 3 | Pay Date Adjustments |
|---|---|---|---|---|---|
| Intersession/Spring | 3 | Feb | Mar | April | May 22 |
| Summer | 3 | June | July | Aug | Sep 22 |
| Fall | 3 | Sep | Oct | Nov | Dec 22 |
After census date and based upon enrollment on that date, Human Resources will send an email to the employee detailing the amount of tuition benefits received and estimated tax impact. Employees who do not receive this email are responsible for notifying Human Resources to ensure the appropriate tax withholding is applied. The taxation period cannot be extended beyond the term specified in the table above, regardless of the circumstances.
The taxable tuition amount is processed via payroll. If an employee's gross pay is not sufficient to cover the tax liability, the employee 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 taxation period, the employee will be required to pay the taxes owed or unenroll from classes prior to the termination date.
Tuition Remission Taxation Examples
Case 1: Sally is a System Analyst working in the Information Technology Services (ITS) Department. Sally takes 12 units of undergraduate coursework in the Fall Term. Sally 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 $7,840 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. The benefit is taxable. 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 approximately 37.15% or $1,486 per month.
Case 3: Michael is an Adjunct Faculty PHP member and is currently not teaching in the Summer Term. Michael's son takes 3 units of graduate work (taxable) in the summer and the tuition benefit received is $4,665.
Since Michael does not have gross wages for the summer, he must pay the tax directly at the estimated taxation rate of 37.15% for 2025. Michael must submit a personal check made payable to USF for $1,733 to Human Resources before the first day of classes.
Case 4: Mary is full-time staff and is taking 3 units of graduate work (taxable) and the tuition benefit received is $4,665. This is her first semester using the benefit for the calendar year. The IRS exemption of 5,250 is applied and for this semester she will not have any tax liability for the benefit. She will have $585 remaining from the tax exemption which will be applied to the next semester in that calendar year.
Taxation Integration Calendars
2025 Tuition Remission Taxation Integration Calendar
Questions?
Please contact tuitionremission@usfca.edu.