LCW has four private education consortiums across the State! Consortium members enjoy access to quality training throughout the year, discounts on other LCW products and events, and unlimited, complimentary telephone and email consultation with an LCW private education attorney on matters related to employment and education law questions (including business & facilities questions and student issues!) We’ve outlined a recent consortium call and the provided answer below. Client confidentiality is paramount to us; we change and omit details in the Consortium Call of the Month.
Question: A Human Resources Director at a private school reached out to LCW to ask whether tuition remission benefits on aftercare and summer camp fees were considered taxable income.
Answer: The LCW attorney advised that tuition remission policies must meet specific parameters under the Internal Revenue Code (IRC) in order to be treated as non-taxable. The IRC uses the term “qualified tuition reduction” to describe a tuition remission benefit.
Under 26 U.S.C. § 117(d), a qualified tuition reduction means the amount of any reduction in tuition provided to an employee of an educational organization described in § 170(b)(1)(A)(ii)—that is, a nonprofit educational institution that maintains a regular faculty, curriculum, and enrolled student body.
A qualified tuition reduction may be excluded from the employee’s gross income if it meets the requirements of § 117(d). In general, this exclusion applies only to tuition for education below the graduate level at the school. The exclusion does not extend to other fees or services such as aftercare programs, extracurricular activities, or summer camps, since those items do not constitute “tuition for education” within the meaning of § 117(d). Accordingly, any remission or discount on aftercare or summer camp fees would be considered taxable income to the employee.
Section 117(d)(3) also provides that, if the tuition reduction is offered to highly compensated employees (as defined in § 414(q)), the benefit is excludable from income only if the tuition reduction plan does not discriminate in favor of highly compensated employees and is available on substantially the same terms to a reasonable group of employees.
The attorney further advised the School to confirm these tax treatment conclusions with its accountant or tax advisor, to ensure proper reporting and withholding on taxable benefits.