Policy Name: Tuition Waiver Policy
Policy ID Number: 03-04-017
Version Effective Date: Not available
Last reviewed on: January 1, 2019
Applies To: Faculty, Staff
Responsible Office: Human Resources
INTRODUCTION AND STATEMENT OF PURPOSE
The purpose of this policy is to outline the Tuition Waiver program for New Jersey City University (NJCU). This policy complies with the Merit System Rules (Title 4A) and all agreements between the State of New Jersey and the collective bargaining units. This policy is subject to the availability of funds.
The Tuition Waiver program provides tuition assistance to allow employees to take approved courses at the university. Employees requesting a Tuition Waiver must agree to pursue all such course work at a time other than at times when the employee is scheduled for regular or emergency work assignments at the University. Attendance and related responsibilities must in no way adversely affect the efficiency or employment of such staff members. The Tuition Waiver covers all sessions (including fall, spring, summer and winter sessions).
Eligible employees – All full-time, permanent employees are eligible for this Tuition Waiver Program once they have successfully completed any required Probationary periods.
Ineligible Employees - Employees in interim, temporary or provisional status; employees whose last performance evaluation is unsatisfactory or below standard.
The benefit amount per year is determined by each individual union contract. Below are the current contract benefits:
Most courses at the university are covered by the Tuition Waiver policy. Below are the ineligible programs and courses:
Ineligible programs and courses – All non-credit courses, study abroad programs, consortium agreements at other institutions, internships or courses where faculty/other institutions are paid on a per- student basis are not eligible to receive this waiver. All doctoral programs are also not eligible.
EXPENSES NOT COVERED
Travel, books, fees and expenses are ineligible under this program.
Employees who do not satisfactorily complete courses for which a Tuition Waiver has been granted, such as receiving a grade below "C" or withdrawing from a course with a “W” grade, shall be required to reimburse the University for all waived costs. Payment must be made upon notice from the Bursars Office of the required reimbursement. Until such reimbursement has been made, no further waivers will be granted to such employee. Notification must be given to the Bursar’s Office via e-mail (firstname.lastname@example.org) when a change of grade to an incomplete grade occurs. Notification must be given to the Bursar’s Office via e-mail (email@example.com) when an incomplete grade has been successfully completed.
Taxability of Tuition Waiver Policy for Employees (Graduate Level Courses Only)
NJCU offers employees the opportunity to pursue higher education free of charge. This exceptional benefit is offered for both undergraduate and graduate coursework. While undergraduate Tuition Waiver is generally not taxed for employees of educational institutions, the Internal Revenue Service has ruled that the graduate tuition benefit is not excluded from the income of these employees.
WHEN IS TUITION WAIVER TAXED?
Graduate level Tuition Waivers are not excludible under I.R.C. § 117(d) unless the employees are graduate students working as research or teaching assistants. On the other hand, graduate level Tuition Waivers are excludible under I.R.C § 127 up to $5,250 per year, provided the program meets the requirements in I.R.C § 127(b). Finally, graduate level Tuition Waivers which exceed the limitations of I.R.C. § 127 may be excludible under I.R.C § 132 as long as the courses are part of an educational assistance program under § 127 and the tuition would be deductible under § 162 if the employees paid it themselves.
Under Internal Revenue Code (IRC) Section 127, employees enrolled in graduate level classes and who receive employer provided tuition benefits or graduate Tuition Waivers must include in income the amount of Tuition Waivers that exceed $5,250 in a calendar year. Amounts of tuition and fees in excess of $5,250 are subject to taxation in the calendar year in which the expense is incurred.
Employees whose education is considered job related under IRC section 132(j) as a working condition fringe benefit.
The IRS has identified four conditions in making this determination:
WHAT HAPPENS TO THE TAXES THAT ARE WITHHELD?
The additional taxable income and taxes withheld are reported on the W-2 form. The University is required to issue W-2 forms to employees by January 31st to provide the information necessary for completing their tax returns. Educational assistance in excess of the excludable amount is subject to Federal, Social Security, and Medicare taxes.
The following example illustrates how this process works for an employee of an educational institution who received $10,250 of graduate-level Tuition Waiver during the tax year. It also illustrates how the process works for someone who is not an employee at an educational institution and who receives $10,250 of undergraduate- level Tuition Waiver during the tax year.
Example: An employee who has received $10,250 in taxable Tuition Waiver benefits would have $5,000 of additional taxable income reported in boxes 1, 3, and 5 of his/her W-2 ($10,250 Tuition Waiver received less $5,250 exclusion) at the end of the year.
Federal income tax withheld for the year (reported in box 2) would include $1,100 ($5,000 additional taxable wages * 22% withholding rate) more than the amount withheld against wages alone.
Social Security tax withheld for the year (reported in box 4) would include $310 ($5,000 additional taxable wages * 6.2% tax rate) more than the amount withheld against wages alone.
Medicare tax withheld for the year (reported in box 6) would include $72.50 ($5,000 additional taxable wages * 1.45% tax rate) more than the amount withheld against wages alone.
The table below shows where the taxable income and taxes withheld are reported on the W-2 Form.
Type of Tax
W-2 Taxable Wages
W-2 Taxes Withheld
Federal Income Tax
Box 1 $5,000.00
Box 2 $1,100.00
Box 3 $5,000.00
Box 4 $310.00
Up to the annual maximum
Box 5 $5,000.00
Box 6 $72.50
Total Taxes: $1,482.50 29.65%
The additional $1,482.50 in taxes ($1,100 federal + $310 Social Security + $72.50 Medicare) due on the additional income must be withheld from the employee’s paychecks.
HOW IS THE TAXABLE BENEFIT DETERMINED?
At the beginning of the fall semester, The Human Resources Department runs a report indicating the total dollar amount of Tuition Waiver received by employees during the current tax year. The tax year is not tied to the academic year and includes all Tuition Waiver applied to the student’s account for coursework taken in the current calendar year.
If the amount received by an employee exceeds the annual excludable amount ($5,250), the excess must be added to the employee’s taxable wages in the calendar year the employee receives the benefit. The increase in taxable wages will increase the taxes withheld from your paycheck and reduce your net pay.
WHEN ARE THE TAXES WITHHELD FROM EMPLOYEES’ PAYCHECKS?
To minimize the impact on your net pay, once The Human Resources Department determines that additional tax withholding is required, the additional taxes will be spread out evenly across the paychecks issued during the current calendar year. If you have already received one or more paychecks during the current calendar year, the additional taxes will be spread out across the remaining paychecks that you will receive during the calendar year.
FREQUENTLY ASKED QUESTIONS FOR TAXIBILITY OF TUITION WAIVER FOR EMPLOYEES
What classes and charges make up the amount of Tuition Waiver reported to The Human Resources Department? I do not agree with the amount reported to The Human Resources Department.
As a matter of confidentiality and privacy, The Human Resources Department does not have access to the details of your student records or your student account. You may view the details of your student account online using the Gothic Net portal or contact the Bursar’s office at (201) 200-3045. Any changes or corrections to your Tuition Waiver charges must be processed through the Bursar’s Office
I am a graduate student. Are undergraduate-level courses counted toward the $5,250 annual exclusion?
Graduate Tuition Waiver is not covered under section 117(d) of the Internal Revenue Code, which fully excludes undergraduate coursework. Graduate Tuition Waiver is, instead, covered under section 127 of the Code, which sets an annual limit of $5,250 for the exclusion of employer-paid tuition expenses for both undergraduate and graduate coursework. Therefore, all coursework taken by a graduate student, regardless of the level, counts toward the annual exclusion.
I believe the graduate-level courses I am taking are related to my job and, therefore, qualify as a “working- condition fringe benefit.” Why can’t I be exempt from tax withholding on my graduate courses? Can I spread the collection of the additional tax withholding out beyond the scheduled timeframe?
All income is considered taxable when the benefit is received by the employee. The Human Resources Department is required to withhold the taxes in the calendar year in which the benefit is received.
Why is the federal tax withholding rate so high? Can I change the withholding rate?
Income earned in addition to (supplemental) your regular salary is subject to the highest tax rate that you pay on the federal graduated tax tables. The IRS defines a flat supplemental tax withholding rate, to be used for income over and above an employee’s regular salary, which is pegged to the third lowest tax rate of the federal graduated tax tables. This is currently set at 22%.
We cannot change the rate of withholding on this additional income. If you feel that your total federal income tax withholding for the year will exceed your tax liability, you may submit a new W-4 Form to The Human Resources Department changing the number of exemptions you claim. Please see IRS Publication 505, available on the IRS website, for instructions on how to estimate
DATE TO INITIATE REVIEW AND UPDATE
As deemed necessary or appropriate by the Policy Coordinator but at a minimum, at least every 5 years from the date of last review.