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.|
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.
benefits that exceed the $5,250 threshold are generally taxable, unless they
can be excluded as a "working condition fringe benefit."
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 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
|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.|
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 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|