The Catholic University of America

Summary of Federal Laws

Tax

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Tuition Assistance

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Tax Issues Related to Students

Qualified Tuition Reductions

A qualified tuition reduction is any reduction in tuition provided to an employee for the education of an employee or certain relatives of the employee at the institution the employee works at or another qualified institution. A qualified tuition reduction is tax-free. The tuition must be for education below the graduate level, with an exception for graduate students engaged in teaching or research at the university. The term does not include a reduction that represents payment for services. Tax-free tuition reduction is also available to a former employee who retired or left on disability; a widow or widower of an individual who died while an employee, a widow or widower of a former employee who retired or left on disability, or a dependent child or spouse of an employee or any of the above. If both parents have died, and if one of the parents qualified under the list above, the child, if under age 25, can qualify for a tuition reduction from income. Note that for graduate teaching or research assistants the tax-exemption is not available for that portion of the reduction that represents payment for teaching, research or other services that are required as a condition for receiving the reduction. See Prop. Treas. Reg. § 1.117-6(d), 53 Fed. Reg. 21,688 (June 9, 1988). The Department of Education has taken the position that an institution may release information in response to an administrative summons without violating FERPA.

The IRS released a private letter ruling confirming that tuition benefits for university employees' children are not taxed. The IRS ruled that a university's employees may exclude from income tuition benefits provided for their children under the school's tuition grant program. The IRS ruled that the plan in question complied with the prohibition against discrimination in favor of highly compensated employees under I.R.C. § 117(d)(3). See Priv. Ltr. Rul. 97-10-022 (Mar. 17, 1997)

links updated 6/23/08 rab

updated 5/15/09 compliance partner added
compliance box links updated 6/10/09 rab

updated 6/22/09 to add related policies

updated 6/24/10 tol