Date: October 15, 1999
Bulletin No. 123
|Subject||Educational Assistance Benefits|
|Purpose||This bulletin updates PaySR Bulletin 58 and complements Accounting Bulletin A456 in relation to the processing and taxation of educational assistance benefits for 1999.|
|Affected Employees||Employees who received a taxable employer- provided educational assistance benefit during the 1999 calendar year.|
The tax rules governing employer-provided educational assistance benefits are the same in 1999 as they were last year. In general, job- related educational assistance benefits are not taxable; non-job- related benefits are taxable, with the following clarifications and exceptions:
No tax withholding is required on educational assistance benefits provided to State employees for undergraduate courses, up to a $5,250 limit during the tax year.
Undergraduate benefits that exceed the $5,250 threshold are generally taxable, unless they can be excluded as a "working condition fringe benefit."
In general, educational assistance benefits provided for graduate courses are taxable, unless they can be excluded as a "working condition fringe benefit."
In general, to meet the requirements of the "working condition fringe benefit" exclusion, the benefit must meet the following tests. Specifically, the course:
1. must not be for the purpose of satisfying the minimum educational requirements of the job;
To illustrate the distinction between educational assistance benefits that qualify for the exclusion from those that do not, attached to this bulletin are several examples taken directly from IRS publications. The following chart recaps the tax rules as described above:
As noted above, undergraduate benefits
above the $5,250 threshold that do not meet the requirements of the working
condition fringe benefit exclusion and graduate level benefits that do not
meet these requirements are subject to wage reporting and withholding.
Reimbursement for such courses provided through the Central Accounting
System (see Accounting Bulletin A456) must be reported to the payroll system
(PaySR) in order to effectuate the withholding of taxes.
Taxable amounts for 1999 may be entered into PaySR beginning immediately and continuing through pay period 17L (submission date of 11/17 (noon) for Institution cycle checks dated 12/2; submission date of 11/23 (noon) for Administration cycle checks dated 12/8).
If the value of an employee’s educational assistance benefit equals or exceeds $300, agencies should divide the value of the benefit by three and enter one-third of the value of the benefit into PaySR in each of three successive payroll periods, as long as the final entry occurs no later than the pay period 17-Lag/18-Current dates noted above. For example, if an employee’s benefit totals $600, agencies should enter $200 in pay period 15-Lag/16-Current (checks dated November 4 for Institution and November 10 for Administration), another $200 in pay period 16-Lag/17-Current (checks dated November 18 for Institution and November 24 for Administration), and the final $200 in pay period 17-Lag/18-Current (checks dated December 2 for Institution and December 8 for Administration)). This approach will lessen the impact of the tax withholding on employees’ net paychecks by spreading the impact over multiple payroll periods.
These same dates and procedures will be used to process taxable tuition assistance provided through LEAP, PSTP and the M/C tuition reimbursement program.
Agencies may enter the taxable value into PaySR on the TIME ENTRY panel or report the transaction on the MISCELLANEOUS PAYMENTS FILE. Specific reporting procedures are provided below.
|Time Entry On-line Instructions||
1. Access the Time Entry panel.
2. Enter the following information in the Dialog Box to select the employee:
3. Click OK
4. On the Time Entry panel, enter the following information:
5. Click the Save button on the tool bar.
|Miscellaneous Payments File Instructions||Agencies reporting this information using the Miscellaneous Payments File should use the same data elements as shown above in the Time Entry On-Line Instructions.|
|Communication to Affected Employees||
Attached to this Bulletin is a separate
communication for employees that briefly explains the tax rules governing
educational assistance benefits, describes how the educational assistance
amounts will be displayed on the pay stub and provides guidance for
employees who believe that their benefits may meet the requirements of the
working condition fringe benefit exclusion. Agencies are strongly encouraged
1. Attach additional information to this communication that identifies the specific dates on which the withholding for educational assistance benefits will take place; and,
2. Provide the letter and the attachment to affected employees prior to processing these benefits through the payroll system for purposes of tax withholding. Advance notice will give employees time to prepare for the additional withholding.
Agencies also will receive from OSC (under separate cover), a list of employees who received taxable tuition assistance in 1999 through LEAP, PSTP and the M/C tuition reimbursement program. These employees should also receive a copy of the communication attached to this Bulletin prior to the withholding of taxes (i.e., prior to the first paycheck dates in November).
Questions regarding this bulletin may be directed to the Payroll Deductions mailbox.