Under IRS tax code, the value of certain educational benefits applied to graduate-level courses is considered taxable income. This requires University employees to pay taxes on a portion of the educational benefit they receive for graduate-level courses over a certain value. 

For spouses and domestic partners utilizing the graduate education benefits, there is no pre-tax value, so the benefit is subject to taxation. For domestic partners, the undergraduate benefit is also subject to taxation.

For University employees, the first $5,250.00 (in a calendar year) is awarded on a pre-tax basis because the University has an IRC §127 Tuition Benefit Plan in effect.  After this amount is met, the withholding regarding this benefit is at a rate of 29.65%. 

Calculating the Education Benefit Taxation

The student billing system, PeopleSoft, is programmed to reduce the benefit amount applied to the applicable student account by the estimated tax amount. The final calculation of the taxes is calculated using the employee’s taxable scholarship, the actual tax calculated at employee’s tax rate (at the time of the calculation), and the net taxable scholarship posted to the student's account.

For those utilizing taxable education benefits for themselves and a spouse or domestic partner, the taxable scholarship and net taxable scholarship will be the sum of both students' amounts. Please note: a large scholarship amount may cause an increase in an individual’s federal income tax percentage rate and may result in a lower pay for that pay period.

As this is an employer offered benefit, the payment responsibility for taxation is that of the employees and is reconciled in the associated employee’s pay. Learn more about this process on the Payroll Department's website. 

Calculating the Tax Withheld from the Scholarship

To calculate the estimated tax withheld, you will need to know the following information:

• Benefit type (self, spouse/domestic partner)
• Number of credits to which the benefit is applicable
  • Self (full-time roles): 6 credits
  • Self (part-time staff): 6 credits * FTE
  • Spouse/Domestic Partner: 6 credits
• Number of credits in which the student is enrolled (per term)
  • For employees, you will also need to know how many terms the benefit will be used in the calendar year
• Per-credit cost of the program

Taxation Calculation Examples

To help understand and calculate the taxation of education benefits, employees and/or their spouses or domestic partners are encouraged to review the following education benefit taxation calculation examples.

Graduate Level Education Benefit Examples

• Self | Full-time Regular Staff¹
• Self | Part-time Regular Employee
• Spouse or Domestic Partner of a Full-time Regular Employee | Full-time Student Enrollment
• Spouse or Domestic Partner of a Full-time Regular Employee | Part-time Student Enrollment

Undergraduate Level Education Benefit Examples

• Domestic Partner of a Full-time Regular Employee | Full-time Student Enrollment
• Domestic Partner of a Full-time Regular Employee | Part-time Student Enrollment

Questions

For additional questions about education benefits or their taxation, please contact the Benefits Department by submitting an inquiry online.

¹For the education benefit, full‐time regular employee refers to Full‐Time, Regular Faculty; Full‐Time, Regular Librarians; Full‐Time, Regular Research Associates; Full‐Time, Regular Postdoctoral Associates; and Full‐Time, Regular Staff. Staff members under Collective Bargaining Agreements are governed according to the terms of the Agreements.