Purpose

The purpose of this bulletin is to provide agencies with instructions for processing taxable educational assistance benefits for 2020.

Affected Employees

Employees who receive employer paid and/or union (PEF and/or CSEA) paid qualified educational assistance benefits exceeding the $5,250 exclusion limit for calendar year 2020 are affected.

Background

Per IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, the first $5,250 of educational assistance provided to an employee under an educational assistance program is excluded from taxable wages.
 
Amounts in excess of $5,250 must be reported and are subject to Federal, State, Local, Social Security and Medicare taxes.

A qualified program may only benefit the employee.  A program that provides benefits to a spouse or dependents of employees is not a qualified program.
 
Benefits paid by a nonqualified program are fully taxable.

Most State of New York programs are qualified programs.  Please see IRS Publication 15-B for further information.

OSC Actions

OSC will create Control-D report NPAY758 (Educational Assistance Reported to OSC).

Agency Actions

Agencies must review the NPAY758 report and identify employees whose educational assistance benefits, as identified on the report, either:

1. Exceed $5,250; or
2. Exceed $5,250 when combined with any additional educational assistance benefits paid to the employee by the agency through the NYS Statewide Financial System (SFS) Accounts Payable voucher process.

Note: If the employee is listed multiple times on Control D report NPAY758, the agency must combine all amounts related to the employee and then calculate the total amount that exceeds $5,250. 

The amount exceeding $5,250 is considered the taxable amount and must be reported in PayServ through either Time Entry or the agency Miscellaneous File.

To report the taxable amount through Time Entry, use the Earnings Code EDA and enter the following information into the Time Entry page:

NOTE:  If an employee appears on the NPAY758 who has left the agency, the amount of educational assistance can still be entered into Time Entry using earnings dates prior to their departure date.

For Administration pay cycle agencies, transactions must be entered no later than Pay Period 18 Lag (check dated December 23, 2020) and Pay Period 19 Current (check dated December 23, 2020).

For Institution pay cycle agencies, transactions must be entered no later than Pay Period 18 Lag (check dated December 17, 2020) and Pay Period 19 Current (check dated December 17, 2020).

Tax Information

Educational Assistance exceeding $5,250 is considered a taxable fringe benefit.  As such, it is supplemental taxable income, will be added to the employee’s taxable gross wages for tax withholding purposes, and is subject to employment and income taxes.

Federal, State and New York City income tax withholding will be calculated using the Aggregate method.  Yonkers income tax withholding will be calculated using the Flat Rate method.  Yonkers Flat Rate Withholding is 1.61135% for Yonkers residents and 0.50% for Yonkers nonresidents.

Payroll Register and Employee’s Paycheck/Advice Communication to Affected Employees

The Earnings Code EDA and the amount will appear on the employee’s paycheck or direct deposit advice statement.  OSC has prepared the attached letter explaining the tax rules governing educational assistance benefits and describing how the educational assistance amount will be displayed on the employee’s paycheck or direct deposit advice statement.

Agencies are strongly encouraged to:

• Provide this letter to affected employees prior to processing these transactions. This advance notification will give employees time to prepare for the additional tax withholding.
• Include additional information with this letter that identifies the specific paycheck date on which the withholding for educational assistance benefits will occur.

Questions

Questions regarding this bulletin may be directed to the Tax and Compliance mailbox.