The Internal Revenue Code (IRC) provides three sets of rules that may be used to determine whether a tuition benefit is taxable. If any of the three provisions applies, the tuition will be a tax-free benefit.
IRC Section 127 (Educational Assistance Programs). The Austin Peay State University Educational Assistance Program qualifies as an Educational Assistance Program. Section 127 applies to employees only. The maximum amount that may be excluded under Section 127 in any year is $5,250. The Section 127 exclusion applies generally to undergraduate and graduate tuition benefits except for classes involving sports, games, or hobbies, which are neither job-related nor required for a degree.
IRC Section 117(d) (Qualified Tuition Reduction Programs). Tuition benefits provided to employees, spouses and dependents may be excluded from taxable income. The Section 117(d) rules are less restrictive than those under Section 127 in that there is no dollar limit on the amount that may be excluded. However, under Section 117(d), graduate level courses are not excludable (unless the student is working as a teaching or research assistant for the University.)
IRC Regulation Section 1.132-1(f) “Fringe Benefit” rules. The IRS fringe benefit rules provide that tuition can be a tax-free benefit if the education “maintains or improves job skills”. Under these rules, the exclusion does not apply if the course is required to meet the minimum educational requirements of your job or if it qualifies you for a new occupation. Finally, under the fringe benefit rules, the exclusion will not apply to tuition benefits provided to your spouse or dependents. The University complies with federal and state tax regulations governing any applicable taxability, tax reporting and/or withholding of taxes on the University’s reduced tuition and educational assistance programs. The value of any taxable tuition benefits will be added to your taxable income and be subject to all employment tax withholdings at the end of the year.
To find out if you are applicable, click here for the Tuition Deduction Flow Chart.
Amounts over $5250.00 for the employee may qualify as a "Fringe Benefit" under Section 1.132-1 if considered job-related a Job Related Tuition Wavier Form must be submitted to Payroll by the first of November each year.