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Taxation

The table below summarizes taxable and non-taxable courses:

• Why are courses taxable?
  • • The Tuition Fee Waiver Program is a fringe benefit and as such has strict reporting requirements established by the Internal Revenue Service [Internal Revenue Code Sections 117(d), 127 and 132(d)] and the State of California Controller’s Office. The reporting requirements state that the fringe benefit must be taxed in the calendar year in which the benefit was received.
    • Contact the  Program Coordinator if you have any questions.
• Which courses are taxable?
  • • Graduate/Doctorate level courses taken by you, the employee, which exceed the $5,250 threshold. The tax will be withheld from your paycheck. You may consult a personal tax advisor to determine if courses taken are job related pursuant to IRC Section 132(d) and submit the deduction on your personal tax return.
    • Graduate level courses taken by your qualified dependent will be reported as imputed taxable income to you, the employee.
    • Undergraduate level courses taken by your domestic partner will also be considered imputed taxable income.
• Which courses are not taxable?
  • • Undergraduate level courses you, the employee, take are non-taxable.
    • Graduate/Doctorate fees for you, the employee, are non-taxable if the total fees waived do not exceed $5,250 in a calendar year.
• When are the taxes taken?
  • • The imputed income is reported to the State Controller's Office once a semester after enrollment census. There is no adverse tax reporting on imputed income when an employee or an employee’s dependent drops courses. 
    • The additional tax withholdings are deducted from the employee’s first and second paychecks following this reporting.
• How much will I be taxed?
  • • The flat rate tax method is used to determine the amount of imputed tax an employee is subject to if the courses they or their dependents take are taxable.
    • The current flat tax rate is 36.25%; and may be adjusted annually.
    • The tax is comprised of:
      • Federal Tax (currently 22%)
      • State Tax (currently 6.6%)
      • Social Security Tax (6.2%) (if the employee is subject to this tax on normal wages)
      • Medicare Tax (1.45%) (if the employee is subject to this tax on normal wages)
    • Calculate the amount:
      • Total Fees Above Threshold x Flat Tax Rate
      • Example:
        • Total Value of Fee Waiver = $8,750
        • Threshold Amount = $5,250
        • Flat Tax Rate = 36.25%
        • $8,750 - $5,250 = $3,500 Total Taxable Fees
        • $3,500 x 36.25% = $1,268.75 Imputed Tax Value (withheld from two consecutive paychecks)