Tax Implications from Fee Waivers
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.
| Eligible Participant | Undergraduate and Post-Baccalaureate | Graduate |
|---|---|---|
| CSU Employee | Nontaxable | Nontaxable up to $5,250 |
| Employee’s Spouse or Dependent Child | Nontaxable | Taxable |
| Employee's Domestic Partner | Taxable | Taxable |
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.
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 threshold. Taxes are withheld from the employee’s paycheck.
Graduate courses deemed job-related, pursuant to Internal Revenue Code Section 132(d), will not be excludable from W-2 wages. Employees may consult a personal tax advisor to determine if courses taken are job-related and include the deduction on their personal tax return.
How much?
Currently, the flat tax rate is 36.25% (1/2019); and maybe adjusted annually.
A flat tax calculation of the taxed portion of the fee waiver benefits is as follows:
- Estimate the fee waiver value for the calendar year =
regular registration fees and tuition - estimated fees charged - Value of fee waiver X flat tax rate = flat tax amount deducted from employee's wages.
You will be notified prior to submitting the taxable amount to the State Controller's Office.
- View taxation examples for dependents(opens in new window) taking courses.
- View taxation examples for employees (PDF) taking graduate courses.
When?
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 1st