Tuition Fee Waiver Tax Implications

Fee Waiver Taxation

The Fee Waiver Program is a fringe benefit and has strict reporting requirements established by the Internal Revenue Service [Internal Revenue Code Sections 117(d), 127 and 132(d)] and the State of California Controller’s Office. The reporting requirements state the fringe benefit must be taxed in the calendar year that the benefit was received.

Use the matrix below to check the tax status of your fee waiver:

Fee Waiver & Tax Status
ELIGIBLE PARTICIPANT	COURSE LEVEL	TAX STATUS
CSU Employee	Undergraduate	Nontaxable
CSU Employee	Graduate / Credential	Nontaxable up to $5,250
Employee's Spouse / Dependent Child	Undergraduate	Nontaxable
Employee's Spouse / Dependent Child	Graduate / Credential	Taxable*
Employee's Domestic Partner	Undergraduate	Taxable*
Employee's Domestic Partner	Graduate / Credential	Taxable*

*Taxable to the employee

Understanding Taxation

All graduate-level coursework, including the doctoral program, taken by an employee's spouse, domestic partner or dependent child utilizing the employee fee waiver benefit will be reported as taxable income. The amount of the waived fees that are determined to be taxable will be included as wages on the employee’s form W-2 and applicable taxes will be scheduled to be withheld from the employee’s paycheck.

All employees taking graduate/doctorate level courses will have the value of their fee waivers tracked over the course of a calendar year and will be taxed on the value exceeding the $5,250 annual exclusion amount. The amount of the waived fees that are determined to be taxable will be included as wages on the employee’s form W-2 and applicable taxes will be scheduled to be withheld from the employee’s paycheck.

Imputed Tax Rates

Currently, the flat tax rate is 36.25% (may be adjusted annually). This rate is comprised of:

Federal Tax (currently 22%);
State Tax (currently 6.6%);
Social Security Tax (6.2%) (if the employee is subject to this tax on normal wages; and
Medicare Tax (1.45%)

Tax Calculation Tool

The imputed income is reported to the State Controller’s Office each term. The reporting is done after Census for the term so there is no adverse tax reporting on imputed income when an employee or an employee’s dependent drops courses.

Estimated Timeframe for Tax Withholding

If the fee waiver is taxable, the flat tax will be subtracted from the employee's paycheck towards the end of the term. Estimated dates are:

Spring = Paycheck dated May 1st
Summer = Paycheck dated Sept 1st
Fall = Paycheck dated Nov 1^st

If you are attending another campus, these estimated dates will fluctuate as CSUSM is subject to the receipt of information from the attending campus.

You will be notified when the taxable amounts are submitted to the State Controller's Office.

Please consult a personal tax advisor for guidance about this employee fringe benefit and how it may relate to your personal tax return. Please keep in mind that no one from California State University San Marcos can act as a tax consultant, give personal, legal, or tax advice, or represent an individual with the Internal Revenue Service (IRS). Thus, information provided is done so as a courtesy and should not be constructed in any way as legal or tax advice.