If you or a member of your family is or was an employee of an eligible educational institution, you may be able to exclude from your gross income a “Qualified Tuition Reduction” provided to you for education at that or another institution.
For purposes of this exclusion, an eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities. You do not have to use the tuition reduction at the eligible educational institution from which you received it. In other words, if you work for an eligible educational institution and the institution arranges for you to take courses at another eligible educational institution without paying any tuition, you may be able to exclude the value of the free courses from your income.
The rules for determining whether a tuition reduction is qualified, and therefore tax free, are different depending on whether the education provided is below the graduate level or is graduate education.
If you receive a tuition reduction for education below the graduate level (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit fits one of the following descriptions:
(1) You are an employee of the eligible educational institution.
(2) You were an employee of the eligible educational institution, but you retired or left on disability.
(3) You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability.
(5) You are the dependent child or spouse of an individual described in (1) through (3), above.
Any tuition reduction you receive for graduate education is qualified, and therefore tax free, if it is provided by an eligible educational institution, and you are a graduate student who performs teaching or research activities for the educational institution. You must include in income any other tuition reductions for graduate education that you receive.
Qualified tuition reductions apply with respect to owners, officers, and highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees, and the group must be defined under a reasonable classification set up by the employer that does not discriminate in favor of owners, officers, or highly compensated employees.
Please call me at your convenience so that we can discuss the exclusion for qualified tuition reductions as it applies to your particular situation.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 05152021-1 320-325)