University Taxes: Tuition Waivers For Graduate Students Explained

Graduate tuition waivers can have an impact on the taxes of universities and their students. In the US, under Internal Revenue Code (IRC) Section 127, graduate-level employees who receive tuition benefits or waivers must include in their income the amount of tuition waivers that exceed $5,250 in a calendar year. This means that the portion of the waiver exceeding this amount is typically subject to a 25% federal income tax, plus 7.65% for Social Security and Medicare Tax. However, there are exceptions to this rule, such as for graduate students engaged in teaching or research activities, as outlined in IRC Section 117(d). Additionally, employees taking job-related graduate-level classes are exempt from tax withholding on their tuition waivers. Universities and colleges, particularly non-profit institutions, may also be able to offer qualified tuition reductions to their employees, which can be excluded from gross income.

Graduate Assistantship (GA) waivers

However, there are some exceptions. If the total of all graduate tuition waivers received in a calendar year does not exceed $5,250, it is exempt from income. Graduate students engaged in teaching or research are also exempt under IRC Section 117(d). Additionally, employees whose education is considered job-related under IRC Section 132(j) as a working condition fringe benefit are exempt.

The University of Washington's Internal Revenue Code section 127 tax plan allows an employee taking graduate-level, non-job-related classes to be entitled to a tuition waiver of up to $5,250 in a year without tax withholding. Amounts exceeding this limit are subject to a 25% federal income tax, plus 7.65% for Social Security and Medicare Tax.

The Graduate Assistantship waiver may result in a reduction of individual student loan eligibility and/or increased tax liability. Taxes withheld are forwarded to the IRS and credited to the individual's tax liability for the year.

Teaching Assistantship (TA) waivers

Graduate students who take on a Teaching Assistant (TA) role can benefit from tuition waivers. These waivers are not taxed, per IRS regulations, and are considered a form of compensation for the work that the TA performs.

Under the Internal Revenue Code (IRC) §127, $5,250 per calendar year (January to December) in tuition and service fee waivers associated with Graduate Assistantships (GAs) are excluded from taxable income. This means that graduate assistants who receive more than $5,250 in tuition waivers in a calendar year must include the amount exceeding $5,250 as taxable income. This additional income is reported on Form W-2 and is subject to federal income tax, as well as Social Security and Medicare Tax.

The University of Washington's Student Fiscal Services monitors tuition waiver status for employees through information submitted to the Registrar's office each quarter. The tuition waiver is calculated three times a year: during the spring, summer, and autumn quarters. This calculation determines if any employees have exceeded the tuition waiver limit of $5,250 during the quarters they were enrolled in classes.

It is important to note that the tax treatment of tuition waivers may vary depending on the specific university and the nature of the teaching assistantship. Additionally, international students may have additional steps to take, such as registering with the University Payroll & Benefits Office for a Tax Status Review.

Overall, Teaching Assistantship waivers can provide a significant benefit to graduate students by reducing their tuition costs. However, it is essential to understand the tax implications and how they may impact the student's overall financial situation.

Research Assistantship (RA) waivers

A Research Assistant (RA) is a graduate student working toward a master's or doctoral degree. RAs are given stipends to support their education and training, and they should not be given work assignments unrelated to their educational pursuits.

Graduate Assistants, Teaching Assistants, Research Assistants, or Graduate Part-Time Instructors who work at least 12 weeks during a semester (at 20% time or greater) also receive a waiver for certain fees. The amount of tuition coverage is calculated based on the percentage of the appointment.

At the University of Wisconsin–Madison, the RA appointment percentage is a mechanism for setting the stipend amount and does not correlate with any particular requirement for work hours. The maximum appointment percentage is 50%. However, to account for potential duties unrelated to an RA's course of study, the university has set a limit of 5 hours of compensated employment per week for RAs.

Job-related vs. non job-related graduate classes

Graduate schemes are often positions that employers offer to university graduates to help them start their careers. They are typically paid, full-time roles that provide graduates with workplace benefits and the opportunity to gain experience in several departments. However, graduate schemes are extremely competitive, with a limited number of places available each year.

In contrast, non-graduate scheme jobs refer to entry-level positions that are advertised daily. These jobs usually have a slightly lower salary than graduate schemes, but they offer a direct path into a specific team within a company. Entry-level roles are also less competitive than graduate schemes, as they are available all year round and have a more straightforward hiring process.

When it comes to tuition waivers, the Internal Revenue Code (IRC) Section 127 states that employees enrolled in graduate-level, non-job-related classes are entitled to a tuition waiver of up to $5,250 per year without tax withholding. This means that if the tuition waiver exceeds $5,250, the excess amount will be subject to federal income tax and Social Security and Medicare Tax. On the other hand, no tax is withheld for graduate-level, job-related classes or any undergraduate-level classes.

To determine whether a graduate-level class is job-related, the IRS has identified four conditions:

• The education must be required by the employer or by law to maintain the individual's current job, salary, or status, as long as it serves the business purpose of the employer.
• The education is necessary to maintain or improve skills needed in the individual's present job.
• The education cannot qualify the individual for a new trade or business.
• The education cannot be used to meet the minimum educational requirements of the individual's present job.

Overall, graduate schemes and non-graduate scheme jobs each have their own advantages and disadvantages, and the choice between the two depends on an individual's career goals and preferences. Similarly, the tax implications of tuition waivers depend on whether the classes are job-related and the total amount of the waiver.

Qualified tuition reduction

The Qualified Tuition Reduction program allows eligible employees of educational institutions to exclude from their gross income the benefits of free or reduced tuition for themselves, their spouse, or their dependent children. This is known as a "qualified tuition reduction" and is outlined in Section 117(d)(1) of the Internal Revenue Code (IRC).

A "qualified tuition reduction" is defined in Section 117(d)(2) as a reduction in tuition provided to any employee of a Section 170(b)(1)(A)(ii) educational organization for education below the graduate level. This means that the educational organization pays some or all of the tuition for the employee, which can take the form of a tuition remission, a tuition waiver, or a tuition grant.

However, tuition reductions for graduate education are also considered qualified and excludable from gross income, but only if they are provided by an eligible educational institution to a graduate student performing teaching or research activities for the institution. In this case, the employee must include in their income any other tuition reductions received for graduate education, per IRC Section 117(d)(5)(4).

Additionally, the exclusion from income provided by Section 117(d) is generally limited to education "below the graduate level." Graduate-level tuition reductions that exceed $5,250 in a calendar year are subject to taxation. This is because, per IRC Section 127, employees enrolled in graduate-level classes who receive employer-provided tuition benefits or waivers must include in their income the amount of tuition waivers that exceed $5,250 in a calendar year.

It is important to note that there are exceptions to graduate tuition waivers being taxed. For example, if the total of all graduate tuition waivers received in a calendar year does not exceed $5,250, it is exempt from income. Additionally, graduate students engaged in teaching or research may be exempt under IRC Section 117(d), and employees whose education is considered job-related under IRC Section 132(j) may also be exempt.

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