NYS Comptroller Seal  

Bureau of State Payroll Services

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.
Tax Rules 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;
AND
2. must not qualify the employee for a new trade or business;
AND, EITHER
3. must maintain or improve current job skills
OR
4. be required by the employer or by Federal or State law to retain the particular job, title or pay rate.

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:

Type/Level
 of Benefit

Excludable
(Non-
Taxable)

Reportable (Taxable)
I. Undergraduate Level
a. Below the $5,250 annual threshold X
b. Above the $5,250 annual threshold and meets the requirements of the working condition fringe benefit exclusion X
c. Above the $5,250 annual threshold and does not meet the requirements of the working condition fringe benefit exclusion

X

II. Graduate Level
a. Meets the requirements of the working condition fringe benefit exclusion

X

b. Does not meet the requirements of the working condition fringe benefit exclusion

X

Agency Reporting 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.

Path: Start - Compensate Employees- Maintain Payroll Data U.S. - Use - Time Entry - Add.

2. Enter the following information in the Dialog Box to select the employee:

a. Department - enter the employee's agency code
b. EmplID - enter the employee's social security number
c. Employment Rcd Nbr - enter the employee's record number if other than '0'
d. Pay Period End Date - leave blank, defaults to the current period end date.

3. Click OK

4. On the Time Entry panel, enter the following information:

a. Earnings Begin Date - use the beginning date of the current pay period
b. Earnings End Date - use the ending date of the current pay period
c. Earn Code - enter or select the earnings code EDA for Educational Assistance - Taxable
d. Amount - enter the amount of taxable Educational Assistance
e. Cmts - click on this button if you would like to add comments

1. Type any comments relating to the taxable Educational Assistance
2. Click
OK

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 to:

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

Questions regarding this bulletin may be directed to the Payroll Deductions mailbox.