Rules for taxation of employee tuition benefit

piggy bankLast academic year, almost 900 Colorado State University employees took advantage of the Employee Study Privilege benefit, a benefit that provides free tuition to CSU courses and reciprocity with CSU Pueblo and CSU Global. The benefit provides up to nine credits per year, and has been a financial catalyst for many employees to complete undergraduate and graduate degrees.

“As an institution of higher education, we are able to provide an advantage for our eligible employees to work and take tuition-free classes at CSU,” said Teri Suhr, chief total rewards officer in Human Resources. “The value of the educational benefit can be subject to taxation in some cases, due to IRS rules. This is important for employees to know as they register for classes.”

Undergraduate tuition is not taxed, but graduate level courses – such as courses for an employee working toward a master’s level or more advanced degree – are taxed, according to IRS rules. The tax is levied only against the amount of the benefit that exceeds $5,250 per year. For example, if an employee used the maximum of nine credit hours of the benefit, which totaled $6,000, the tax would only apply to $750 of the benefit. Taxes are collected at the end of the year through payroll.

The taxes an employee is assessed through payroll vary greatly, depending upon their own personal payroll bracket and course enrollment circumstances.

Since the inception of the benefit, the university has funded thousands of courses for employees. The benefit is also sponsored by Commitment to Campus and is part of the university’s total compensation package.

Enroll in benefits or learn more about the program.