Editor's notes:

MEMO TITLE: Graduate-Level Tuition Benefits

DATE OF ISSUANCE: This information is current as of August 2001.

ACCOUNTABLE DEPARTMENT/UNIT: Benefits Office. Questions should be directed to Christine Pohuly, Benefits Specialist, x8-4747.

ABSTRACT: Provides information on the current tax status of graduate-level tuition benefits for university employees.

Taxation of Graduate-Level Tuition Benefits

Effective January 1, 2002, Section 127 of the Internal Revenue Code will be reinstated. This section allows up to $5,250 per year of graduate-level tuition benefits to be excluded from an employee's taxable income.

This applies only to graduate courses that begin on or after January 1, 2002. Any tuition benefits for graduate-level courses beginning before that date are fully taxable.

Amounts over $5,250 will remain taxable and Carnegie Mellon is required to withhold federal taxes on these amounts. To lessen the financial burden on employees, Carnegie Mellon withholds these taxes over a three-month period rather than in one lump sum. Employees who are enrolled in graduate classes and receiving tuition benefits should automatically receive a letter from the Carnegie Mellon Benefits Office which states the amount that must be withheld and explains the three-month payment plan. Employees who prefer to pay the withholding taxes in one or two pay periods, instead of three, should notify Christine Pohuly of the Benefits Office, in writing.

For more information about personal income taxes as they relate to higher education, you can visit the IRS web site and view IRS publications on this topic.

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