FAQs: Educational Benefits Taxation

What are the tax consequences of the benefit?
Qualified tuition reductions, such as Ohio University's Education Benefit, are excludable from an employee's gross income under Section 117(d) of the Internal Revenue Code.

What's a qualified tuition reduction?
IRS Publication 970, Tax Benefits for Education (http://www.irs.gov/pub/irs-pdf/p970.pdf) further explains the meaning of a qualified tuition reduction. A qualified tuition reduction is free or reduced rate tuition below the graduate level at an eligible educational institution (like Ohio University) for the following individuals: 1. Employees of the eligible institution
2. Former employees of the eligible institution who retired or left on disability
3. Widows or widowers of an individual described in (1) or (2) above
4. Dependent children or spouses of an individual described in (1) through (3) above

What's a dependent?
IRS Publication 501, Exemptions, Standard Deductions, and Filing Information (http://www.irs.gov/pub/irs-pdf/p501.pdf) defines dependents in great detail.

In general, a dependent child is a U.S. citizen, national, or resident alien who is not married and who cannot be claimed as a dependent on someone else's return. In addition, a dependent child must:

  • Be under age 19 at the end of the calendar year OR be under age 24 at the end of the calendar year and a student OR be permanently and totally disabled,

  • Not provide over half of his or her own support,

  • And live with the taxpayer for more than half of the year.Temporary absences such as time living at college counts as living with the taxpayer. If you have additional questions, your individual tax preparer can help determine if your child is a dependent.

For purposes of the qualified tuition reduction, a dependent child of divorced parents is treated as the dependent of both parents.

Are scholarships included in calculating a child's support?
Scholarships received by full-time students should not be included in calculating their support. See IRS Publication 501, Exemptions, Standard Deductions, and Filing Information (http://www.irs.gov/pub/irs-pdf/p501.pdf) for more information.

Who else is covered by OU's policy?
Ohio University's education benefit extends to the following individuals who do not qualify as recipients of a qualified tuition reduction:

  1. Spouses and dependent children taking classes at the graduate level

  2. Domestic partners taking classes at any level

  3. Non dependent children taking classes at any level

Because the individuals listed above do not qualify for qualified tuition reductions, employees receiving the benefit must include the value of the tuition reduction in their gross income.Ohio University is required to withhold taxes on this amount.Additional information may be found in IRS Publication 970, Tax Benefits for Education (http://www.irs.gov/pub/irs-pdf/p970.pdf).

When will taxes be withheld?
Taxes will be withheld once per quarter, and the schedule may be obtained from Payroll at https://www.ohio.edu/hr/taxation.cfm.

Taxes will be withheld at the flat rates of 25% for Federal and 3.5% for State. In addition, Medicare will be withheld along with the appropriate city and school district income taxes.

Who should be contacted with additional questions?
Please contact University Human Resources at 593-1636 with additional questions.

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