Per Section 127 of the IRS code, employees who take graduate courses will not be taxed on the first $5,250 of tuition benefits received in a calendar year. The University will withhold all applicable taxes on graduate tuition benefits received in excess of this value. This tax-free provision does not apply to spouses or dependents taking graduate courses. You may access further information concerning the tax implications associated with graduate-level On-Campus Tuition Remission on Payroll's Graduate Tuition Remission website.
Estimation of Graduate Tax
The University is aware of the hardship these regulations impose and encourages faculty and staff to apply for tuition remission benefits before the deadline each semester to ensure the maximum period of time allowed to withhold taxes. If you, your spouse, and/or eligible dependents drop a graduate course, please complete the appropriate tuition remission form to effect a reduction in your taxable benefit.
Note that if a class is added or dropped following registration, you will be subject to the same pro-rata tuition according to the guidelines published by OSA.
If the student is matriculated, enrolled in 12 or more credits and a New York state resident, he/she is required to apply for New York State's Tuition Assistance Program (TAP). If eligible the TAP award will be applied to offset your remission benefit and reduce your tax liability.
In an effort to further assist employees in minimizing the per pay period impact of graduate tuition taxation, you will be permitted to pre-estimate the value of graduate tuition benefits for the calendar year. This option allows your tax liability to be spread evenly over the remaining payroll periods in the calendar year. If you do not choose this option, then your tax liability will be incurred over the payroll periods for the applicable semester, as mentioned previously.
If you wish to take advantage of the "pre-estimate" option, please contact the Payroll office at (914) 923-2482.
During the fall semester, your graduate tuition account will be reconciled and your withholding request adjusted, if necessary, in October. This option only applies to on-campus graduate tuition for self, spouse and/or dependents. Changes to this estimate will only be made if there is a change in student status (e.g., not enrolling in graduate courses as originally anticipated). Some employees may qualify to deduct certain educational expenses when filing their individual tax return. Affected employees are encouraged to consult a tax advisor regarding eligibility to invoke this deduction.
Things to Consider
- The current $5,250 tax free benefit, which applies to courses taken by the employee only, is based upon a calendar year.
- Graduate tuition remission, for an employee’s eligible dependents, is considered to be taxable income from the first dollar.
- Increased taxes, if applicable, impact federal, state, Social Security, New York City and Yonkers tax levels.
- Payroll estimates are based upon the highest tax bracket at 38%. (The tuition benefit may raise an employee’s current taxable gross to a higher tax bracket.)
- By providing a forecast of scheduled courses prior to January 15th, the increase in taxable gross can be distributed among as many pay periods as possible within the calendar year.
- It is recommended that an employee over-forecasts (rather than under-forecasts) for the calendar year, as tuition may increase at the beginning of the fall semester.
- The dollar amount of the tuition remission benefit will be included in the YTD taxable gross on the employee’s W-2 form.