NYS Comptroller Seal

 

Bureau of State Payroll Services

 

  Date:  November 18, 2003 Bulletin No. 444

Subject Educational Assistance Benefits
Purpose To provide agencies with information regarding the processing and taxation of educational assistance benefits for 2003.
Affected Employees Employees who received, through the State's Central Accounting System, a qualified taxable educational assistance benefit that exceeds the $5,250 threshold for the 2003 calendar year.
Tax Rules In general, gross income of an employee does not include amounts paid or expenses incurred by the employer for educational assistance to the employee if the assistance is furnished pursuant to a qualified educational assistance program.

A qualified program may benefit only the employee. A program that provides benefits to spouses or dependents of employees is not a qualified program. Benefits paid from an unqualified program are fully taxable.

The exclusion of up to $5,250 per year of educational assistance benefits received from a qualified program provided by an employer applies to both graduate and undergraduate courses, whether or not the course is job-related. 

Benefits from a qualified educational assistance program that exceed the $5,250 threshold are generally taxable unless they can be excluded as a "working condition fringe benefit."

To meet the requirements of the "working condition fringe benefit" exclusion, the benefit must meet certain criteria. Specifically, the course:
Maintains or improves skills that an employee is required to have for employment;
Is expressly required by the employer or is legally required in order to retain an established employment relationship, status, or rate of compensation.

The following types of educational instruction do not qualify as job-related:

Courses needed to meet the minimum educational requirements to qualify for employment, or
Education that will qualify an employee for a promotion or transfer to a new trade or business.
Agency Actions Reimbursement for courses processed through the Central Accounting System must be reported to the payroll system in order to withhold taxes.

Taxable amounts for 2003 must be entered into the payroll system to affect an employee's 2003 W-2. Agencies may enter these transactions immediately; however:

For Institution Cycle: Taxable amounts must be entered no later than Payroll Period 18-Lag and Payroll Period 19-Current.

For Administration Cycle: Taxable amounts must be entered no later than Payroll Period 19-Lag and Payroll Period 20-Current.


Agencies may enter the taxable value into the payroll system using the earn code EDA on the TIME ENTRY pages or report the transaction through the agency MISCELLANEOUS FILE. For information regarding submission of Time Entry transactions, refer to Payroll Bulletin No. 408.
Communication to Affected Employees Attached to this Bulletin is a separate communication for employees, that explains the tax rules governing educational assistance benefits and describes how the educational assistance amounts will be displayed on the pay stub / advice statement. Agencies are strongly encouraged to:

1. Provide the letter to affected employees prior to processing these benefits through the payroll system. Advance notification 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 education assistance benefits will take place.
Questions Questions regarding this bulletin may be directed to the Payroll Deductions mailbox.