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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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My wife takes courses for free at the university I work at.

Resolved Question:

My wife takes courses for free at the university I work at. She already has a master's degree but is only taking undergraduate courses for personal enrichment. The school says I have to pay tax on the tuition reduction because they classify her as a graduate student (since she already has an undergraduate degree) and it doesn't matter that she is only taking undergraduate classes. IRS code 117(d) says there is no tax for study "below the graduate level." The school says this refers to the student. I think it refers to the level of the courses you are taking. No one has been able to provide sufficient proof for me to convince the tax people at my school, although some other university websites confirm my interpretation. This is really frustrating. Thank you.
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

Please clarify - if the scholarship is given to your wife

or free tuition is provided because of your employment?

 

The IRC 117 - http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000117----000-.html

deals with "a qualified scholarship by an individual who is a candidate for a degree at an educational organization" - means if your wife was awarded by the scholarship ans if

she is a candidate for a degree - a qualified scholarship is not taxable income for her.

 

If free tuition for your wife is awarded because of your employment - "tuition reduction" is generally considered a compensation for services e.i. wages.

However - according to IRC 117(d) - "qualified tuition reduction" is not included into wages, but only if the reduction in tuition provided to an employee of an organization - means to you. Because the reduction provided to a member of your family - not to you - that would be included into your wages.

 

Please elaborate if you feel so.

Customer: replied 5 years ago.
My wife is given free tuition because of my employment and therefore I do not think it matters if she is going for a degree or not. I believe the question still remains, what does "below the graduate level" mean?
Expert:  Lev replied 5 years ago.

IRC 117(d)(2) Qualified tuition reduction

For purposes of this subsection, the term “qualified tuition reduction” means the amount of any reduction in tuition provided to an employee of an organization described in section 170 (b)(1)(A)(ii) for the education (below the graduate level) at such organization (or another organization described in section 170(b)(1)(A)(ii)) of—
(A) such employee, or
(B) any person treated as an employee (or whose use is treated as an employee use) under the rules of section 132 (h).

 

In this situation - the education (below the graduate level) at such organization - the educational organization determines which courses belongs to the undergraduate level and which to the graduate level - and that should not depends on the educational level of a student. I completely agree with you this matter.

 

However -

  • that has nothing to do with the charge the university imposed on these courses - there is nothing prevent them to charge based on the educational level of students - so different students would pay different tuition fees.
  • also - as I mentioned above - because the educational assistance is provided not to you as an employee - but to a family member - all "tuition reduction" is considered your wages and is taxable income.
  • you may however claim a educational credit - because that amount is included into your income.
Customer: replied 5 years ago.
I will be happy to pay you for your answer. I would like to know what you are basing your decision on so that I can use that as a basis for my argument against the university. Also, I do not believe that my wife's tuition is taxable under 117(d) since it says that any person treated as an employee. Isn't that what my wife is treated as in order to receive a tax reduction. In any case, my university is only challenging the "below the graduate level" issue.
Customer: replied 5 years ago.
Can you please answer my last reply, i.e., what is the documentation that you are basing your decision on? I need this to present it to my university legal department in order to prove my case. Thank you.
Expert:  Lev replied 5 years ago.

Hi,

My opinion is based solely on the tax law - the IRC 117 - http://www.law.cornell.edu/uscode/html/uscode26/usc_sec_26_00000117----000-.html

Any other documentation would be based on law as well.

For purposes of this subsection, the term "qualified tuition reduction" means the amount of any reduction in tuition provided to an employee of an organization described in section 170 (b)(1)(A)(ii) for the education (below the graduate level) at such organization (or another organization described in section 170(b)(1)(A)(ii)) of-
(A) such employee, or
(B) any person treated as an employee (or whose use is treated as an employee use) under the rules of section 132 (h).

 

In this situation - the education (below the graduate level) at such organization - the educational organization determines which courses belongs to the undergraduate level and which to the graduate level - the law doesn't mention that determination should or may be based on the educational level of a specific student. The law also doesn't mention that the same course may be treated as belongs to the undergraduate level and to the graduate level at the same time.

 

I agree with you that interpretation of the law that your employer provided is incorrect - but if you would not able to convince your employer - the only option would be to sue.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22615
Experience: Taxes, Immigration, Labor Relations
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