Taxable income: Undergraduate vs. graduate tuition
All undergraduate subsidy amounts are excluded from the employee’s taxable income.
IRS Section 117 regulations allow for preferential tax treatment of the IU tuition benefit for undergraduate-level courses for employees, retirees, spouses and dependent children.
IRS Section 127 (as described in the IU Section 127 Plan document) allows the preferential tax treatment of up to $5,250 annually for employee subsidies paid toward graduate level tuition, but only for those described in the Eligible Employees and Retirees section.
The IU tuition benefit for graduate-level courses will be added to the employee’s taxable income.
For tax purposes, it does not matter which family member took the graduate-level course, the IU tuition benefit is an employee/retiree benefit. Therefore, the employee or retiree is responsible for applicable taxes. Such taxes will be deducted from the employee’s pay, and in the case of a retiree, the value of the graduate-level IU tuition benefit in excess of $5,250 annually will be given as taxable gross income.
In accordance with IRS regulations, applicable taxes will be withheld from the employee’s pay at the employee’s normal rate for income and FICA taxes. The employee’s pay notice will include reference to the amount of IU tuition benefit included as taxable income.
For your tax records
An email reflecting the amount of additional taxable income and the payroll periods affected will be sent from University Tax Services. In the case of a retiree, the value of the graduate-level IU tuition benefit subsidy will be reported as taxable income on a W-2 tax form and mailed to the retiree.
For additional information, visit the University Controller Fringe Benefits website or email taxpayer@iu.edu.