Memorandum
To:
Budget Officers, HR Unit Reps
From:
Terry Johnson, AVP & Controller
Carroll Reasoner, VP Legal Affairs & General Counsel
Tom Peifer, Tax Manager
Subject:
Taxability of Educational Assistance to Employees
Date:
July 9, 2013
University Tuition Assistance Program
The University offers a Tuition Assistance program to its employees. The program
allows eligible faculty and staff to apply for financial assistance to help defray the cost of
tuition for one college credit course (up to four semester hours). For more information
see http://www.uiowa.edu/learn/awards/tuitionassist.html.
Employers may provide up to $5,250 annually in educational assistance to an employee
on a tax free basis under Internal Revenue Code Section 127. This tax provision was
recently made permanent by the American Taxpayer Relief Act that was signed into law
by the President on January 2, 2013.
Special Tax Provisions Available to Educational Institutions
Undergraduate level education provided to employees of educational institutions can
generally be provided tax free under various Internal Revenue Code sections, primarily
Section 117(d). Graduate level education for graduate students engaged in teaching or
research activities can also be provided tax free.
Educational Assistance Outside of the Tuition Assistance Program
As a general rule, graduate level educational assistance paid to or on behalf of an
employee that is not awarded as part of University’s Tuition Assistance is considered
taxable income to the employee. Tax may be avoided if the job-related education
meets the working condition fringe benefit exception for education described below.
Working Condition Fringe Benefit
Tax may be avoided if the job-related education meets the working condition fringe
benefit exception for education as described on page 21 of the 2013 IRS Publication 15B (http://www.irs.gov/pub/irs-pdf/p15b.pdf), see pertinent language shown below.
Excerpt from IRS Publication 15-B:
Education. Certain job-related education you provide to an employee may qualify
for exclusion as a working condition benefit. To qualify, the education must meet the
same requirements that would apply for determining whether the employee could
deduct the expenses had the employee paid the expenses. Degree programs as a
whole do not necessarily qualify as a working condition benefit. Each course in the
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program must be evaluated for qualification as a working condition benefit. The
education must meet at least one of the following test conditions:
 The education is required by the employer or by law for the employee to keep
his or her present salary, status, or job. The required education must serve a
bona fide business purpose of the employer.
 The education maintains or improves skills needed in the job.
However, even if the education meets one or both of the above tests, it is not
qualifying education (exempt from tax) if it:
 Is needed to meet the minimum educational requirements of the employee’s
present trade or business, or
 Is part of a program of study that will qualify the employee for a new trade or
business.
These requirements are summarized in the flow chart below from IRS Publication
970,Tax Benefits for Education (http://www.irs.gov/pub/irs-pdf/p970.pdf) and should be
utilized to determine whether an employee’s education is qualifying work-related
education and exempt from tax. Chapter 12 of Publication 970 should be reviewed
closely by anyone attempting to qualify the education as a working condition fringe.
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Effective for the 2013 Fall Semester, any employee wishing to claim working condition
fringe benefit treatment for classes taken at the graduate level or above must complete
the Job-Related Graduate Course Certification Form which will be submitted to the
Controller’s Office for review. This certification form will need to be completed each
semester and will be signed by both the employee and the employee’s supervisor
certifying the courses meet the definition of being job-related by the IRS as defined in
Treasury Regulation Section 1.162-5. If this form is not received by the Controller’s
Office, any graduate level or higher courses taken will be treated as taxable
compensation. The Controller’s Office, University General Counsel and the University
Payroll Department will review the certification forms submitted and will make
determinations on each request for tax-exemption.
Budget Officer Responsibility
We need to determine a listing of the employees currently participating in graduate level
or above courses. We’re asking the primary Budget Officers responsible for each
Collegiate/Academic Unit to determine if any employees within their respective units
are/will be taking graduate level or above courses and provide an email listing of the
employees to Tom Peifer by July 19. It would be helpful if this employee listing also
included employee’s that participated in graduate level or above courses for the 2013
Spring and Summer Terms (for informational purposes). Once the employee listing for
the Fall 2013 Term has been determined, the Controller’s Office will email the
Certification Form along with the IRS Regulations to the employees for completion.
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