Taxable Tuition Grant
What is taxable?
- Tuition grant for qualified dependents of a domestic partner are generally taxable to the employee.
- Tuition grant for a non-qualified dependent is taxable to the employee.
When is the employee taxed?
The employee is taxed over five (5) pays for the tuition grant that is either posted to the student's account in the prior quarter or paid to another institution.
- Tuition grant processed between January 1 and March 31 will result in tax withholdings beginning April 30 through June 30.
- Tuition grant payments processed between April 1 and June 30 will result in tax withholdings beginning July 31 through September 30.
- Tuition grant payments processed between July 1 and September 30 will result in tax withholdings beginning October 30 through December 31.
- Tuition grant payments processed between October 1 and December 31 will result in tax withholdings beginning the following January 31 through March 31.
How is the employee taxed?
The amount of the tuition grant is divided by five (5) so that the value is taxed over five pays to spread the impact of the taxes withheld.
- The taxable amount (1/5) is added as a non-cash adjustment to your pay.
- The amount is included as taxable income and reported on your W-2.
- The amount is subject to FICA as well as federal and state income tax.
- The taxes are calculated based on your regular pay plus the tuition grant amount.
- Taxes withheld increase.
- Net pay (take home pay) decreases since the adjustment is non-cash.
How can an employee adjust the taxes withheld?
An employee can submit new tax forms to adjust taxes withheld for subsequent pays. Taxes withheld cannot be refunded.
Updated January 2010