NYS Comptroller Seal  

Bureau of State Payroll Services

Date: November 2, 2000

Bulletin No.  201


Subject Educational Assistance Benefits
Purpose This bulletin updates Payroll Bulletin 123 in relation to the processing and taxation of educational assistance benefits for 2000.
Affected Employees Employees who received a taxable employer-provided educational assistance benefit during the 2000 calendar year.
Tax Rules The tax rules governing employer-provided educational assistance benefits are the same in 2000 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 ob, title or pay rate.

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 2000 may be entered into PaySR beginning immediately and continuing through pay period 18L/19C (submission date of 12/6 for Administration cycle checks dated 12/20; submission date of 12/12 for Institution cycle checks dated 12/28).

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 18 L/19C dates noted above. For example, if an employee’s benefit totals $600, agencies should enter $200 in pay period 16L/17C (checks dated November 22 for Administration and November 30 for Institution), another $200 in pay period 17L/18C (checks dated December 6 for Administration and December 14 for Institution), and the final $200 in pay period 18L/19C (checks dated December 20 for Administration and December 28 for Institution). 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 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 Education Assistance - Taxable

d.Amount - enter the amount of taxable Educational Assistance

e.Audit Cmts - click on this button if you would like to add comments

1.Type any comments related to the taxable Educational Assistance benefits

2.Click OK

f.Save Panel

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 and describes how the educational assistance amounts will be displayed on the pay stub. Agencies are strongly encouraged to:

1.Provide the letter 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: and,

2.Attach additional information to this communication that identifies the specific dates on which the withholding for educational assistance benefits will take place; and,

Agencies also will receive from OSC (under separate cover), a list of employees who received taxable tuition assistance in 2000 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.
Tax Exclusion and Refund Pilot Program Last year, pursuant to an agreement reached with the Governor’s Office of Employee Relations (GOER) and the employee unions (CSEA and PEF), we were able to provide tax refunds to employees who certified that the educational assistance benefits they received in 1999 satisfied the IRS criteria for the "working condition fringe benefit exclusion."

We have been advised by GOER that they are not in a position to continue the refund pilot program in 2000. Accordingly, we are unable to offer tax refunds to those whose graduate courses meet the IRS criteria for the tax exclusion. Employees should be strongly encouraged to seek out the advice of a tax or other knowledgeable professional to determine the taxability of this benefit.

Questions

 

Questions regarding the tax refund program should be directed to the Governor’s Office of Employee Relations.

Questions regarding OSC’s payroll processing may be directed to the Payroll Deductions mailbox.

Attachment-Letter to Recipients