33.2 Tuition Reductions for College Employees

Free or partially free tuition for undergraduate studies provided to a faculty member or school employee is generally not taxable. The tuition reduction may be for education at his or her own school or at another school. Tuition benefits may be taxable to highly compensated employees if the tuition plan discriminates in their favor. Tuition reductions that represent compensation for services are taxable unless paid under the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

Tax-free tuition benefits may also be provided to the employee’s spouse, dependent child, a former employee who retired or left on disability, a widow or widower of an individual who died while employed by the school, or a widow or widower of a retired or disabled employee.

A child under the age of 25 qualifies for a tax-free tuition reduction if both parents have died and one of the parents qualified for tax-free tuition benefits. If the child is age 25 or over, tuition reductions are taxed even if both parents are deceased.

Caution

Graduate Teaching and Research Assistants

If you must teach, do research, or provide other services to obtain a tuition reduction for graduate studies, a tuition reduction from the school is tax free if it is in addition to regular pay for the services. If the tuition reduction is your compensation, it is taxable, unless it is paid under the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

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A tuition reduction for graduate studies may also be tax free; see the Caution on this page.