The Catholic University of America

Questions and Answers about Taxability of Tuition Benefits

Q. Are tuition benefits taxable for undergraduate course work?

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. In what instances 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, employees with at least one year of service may receive up to $5,250 of tuition remission in a given calendar year for graduate coursework tax-free.

Q. How is "one year of service" defined?

A. One year of service for purposes of graduate tax-free tuition benefits is defined in the CUA Section 127 Educational Assistance Plan as a 12 month period during which an employee performs at least 1,000 hours of service for the university. Employees become eligible for the tax exclusion of up to $5250 for the graduate tuition benefit on the first day of the plan year (Jan. 1st) after completion of one year of service. For example, a full time employee who starts work on May 1, 2006 and successfully completes the initial evaluation period, would have completed 1,000 hours of service, or "one year of service" by January 1, 2007 (the beginning of the plan year following completion of one year of service) and thus would be eligible on that date (January 1, 2007) for the tuition assistance benefit on the tax-free basis. Employees with less than one year of service but who otherwise meet the eligibility requirements may receive tuition assistance for graduate programs but it will be taxed.

Q. What are the limitations on the Section 127 Plan benefit?

A. Tuition assistance benefits under the 127 Plan will not be provided for any course that instructs the student in a game, sport or hobby. An employee may not receive tuition assistance benefits under the 127 plan for more than 8 credit hours per semester or more than two educational courses taken in any one semester.

Q. Is there any appeal mechanism if a claim for benefits under the 127 Plan is denied?

A. Yes, please see Article VIII of the CUA Section 127 Educational Assistance Plan.

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 page 11 of IRS Publication 970.

Questions and Answers about General Terms and Conditions

Q. Who is eligible for tuition assistance?

A. Persons eligible for tuition assistance include regular full-time and regular part-time employees who are ordinarily eligible for university benefits and their spouses and dependent children as defined in the tuition assistance policy. Temporary employees and part time employees who work fewer than 20 hours a week are not eligible for tuition assistance.

Q. Who qualifies as a dependent child?

A. "Dependent child" or "dependent children" includes a son, daughter, or an adopted son or adopted daughter. In those situations where the tax code (26 USC § 117(d)) allows tax-free tuition remission for a stepchild, the term "dependent child" or "dependent children" will also include a stepson or stepdaughter. For tuition remission to be non-taxable under 26 USC § 117(d) the stepson or stepdaughter receiving the education benefit must be claimed by the employee on the employee's tax return as a dependent. In order for the benefit to be tax-free there must be a spousal relationship between the employee and the parent of the stepchild for the stepdaughter or stepson status to occur. The child need not be legally adopted by the stepparent, but simply claimed as a dependent on the tax form. If the parents are married filing separately, and the non-employee parent claims the child as a dependent on her/his tax form, the benefit will not be available.

Q. When does eligibility start?

A. There is a waiting period for staff employees. Staff employees become eligible upon successful completion of their initial evaluation period (normally the first three months of employment).

Spouses and dependent children of staff employees become eligible after the staff employee has successfully completed one year of employment. The one-year period must be completed by the last day of regular registration for the semester in which the spouse or child would be enrolled.

Both the three month and one year waiting periods begin on the first day of regular employment and must be completed by the last day of regular registration. Note that the waiting period for eligibility to obtain graduate tuition benefits on a tax-free basis is different, and is defined above and also in the policy.

Q. Are the waiting periods the same for administrative level employees and faculty?

A. No. Regular full-time and regular part-time administrative level employees and faculty members are eligible for tuition assistance benefits for themselves, their spouses and dependent children immediately upon hire, subject to the regular rules for academic registration. Note that the waiting period for eligibility to obtain graduate tuition benefits on a tax-free basis is different, and is defined above and also in the policy.

Q. Can I use the tuition assistance before I have been admitted to the university?

A. All recipients of tuition assistance must fulfill all of the usual conditions for admission to the university, its degree programs and/or courses.

Q. Can I use tuition assistance benefits under this policy at any other university?

A. No, unless a course at a member institution of the Consortium of Universities of Washington, D.C. is certified by the cognizant dean/department chair as required for the student's program and is not available at CUA. Employees, their spouses and dependent children are subject to the same enrollment limitations as all other students.

Q. Can employees take classes during their normal working hours?

A. No, tuition assistance is not ordinarily granted to employees for courses offered during the employee's normal working hours. Occasionally exceptions are made when the course is directly related to the employee's current job. When registration for and attendance in such a course is necessary, the employee must have the prior approvals of both their immediate supervisor and the cognizant Vice President. Time taken from the normal working hours to attend such a course must be made up with a schedule subject to the same approvals.

Q. Can I take courses in the academic unit in which I am employed?

A. No, employees may not study in a department or, in schools without departments, in the school in which they work.

Q. What's the amount of tuition assistance for eligible persons?

A. Eligible employees who enroll in any of the schools of the university may receive full tuition assistance for themselves for four courses per Academic Year; however, employees are not permitted to take more than two courses per semester. This benefit is pro-rated for regular part-time employees. Spouses and dependent children of full-time employees may receive full-time student tuition assistance, subject to other limitations in this policy. For part-time employees, the amount of tuition assistance offered to part-time employees and their spouses and dependent children is pro-rated based on the number of hours the employee works.

Q. What happens if I am no longer employed by CUA?

A. Receipt of tuition assistance benefits for any eligible person is contingent upon continued employment for the entire semester or summer session for which tuition assistance was approved. In the event that an employee retires, terminates as a result of a reduction in force, or is approved for long-term disability during a semester or summer session for which tuition assistance was approved, his/her tuition assistance benefits will be continued through the end of the semester or summer session.

Q. Can an eligible person get tuition assistance benefits and university scholarship funds at the same time?

A. No, tuition assistance benefits may not be combined with other university scholarship funds. Tuition assistance benefits do not cover fees.

updated 1/31/07