State of Florida Employee Taxable Income on Graduate Level Courses – Revised

John P. Kruczek, University Controller

The Office of the State Comptroller has advised us that employer provided educational assistance established under Internal Revenue Code (IRC) Section 127 will be taxable compensation and reportable on the employee’s Form W-2, Wage and Tax Statement.

This change in the tax law means that eligible employees taking advantage of the “Tuition Fee-Waiver Program,” for up to six hours of university courses per semester, will earn taxable income equal to the tuition waiver. The taxable income provisions require implementation in two stages. Effective after June 30, 1996, employees enrolled in graduate-level courses will earn taxable income equal to the tuition waiver. This taxable income is subject to both federal income tax and Social Security and Medicare taxes (FICA). Social Security and Medicare taxes are paid by both the employee and employer.

Due to current processing system limitations the Bureau of State Payroll office cannot deduct income tax withholding, programmatically, for calendar year 1996 and will deduct only FICA taxes. Employees may wish to withhold additional amounts for the remainder of 1996 to cover these additional taxes. Beginning in 1997, withholding will include both income and FICA taxes.

Under IRC Section 117(d), tuition reductions given to employees of educational institutions for education below the graduate level are excludable from their income without dollar limit. Graduate students employed as teaching and research assistants are also entitled to the income exclusion for tuition reduction.

Should you have any questions please call me at (352) 392-1321 or Murphy Miller, Assistant Controller, Payroll, at (352) 392-1231.