Human Resources Service Center

Tax Implications from Fee Waivers

Please check the tax status of your fee waiver using the matrix below. If it "Taxable" or "*" it is very important that you take this opportunity to calculate your potential taxes. 

Tax Status Matrix

Eligible ParticipantUndergraduate and Post-BaccalaureateGraduate
CSU EmployeeNontaxableNontaxable up to $5,250*
Employee’s Spouse or Dependent ChildNontaxableTaxable**
Employee's Domestic PartnerTaxableTaxable**

The Fee Waiver Program is a fringe benefit and as such 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 that the fringe benefit must be taxed in the calendar year that the benefit was received. 

* Effective with the 2019 tax year, commencing with the spring 2019 academic term, all graduate/doctorate level courses taken by employees, where the calendar year total exceeds the $5,250 threshold, will be taxable and withheld from the employee's pay warrant (paycheck). Employees will be taxed on the value exceeding the $5,250 threshold. Employees may consult a personal tax advisor to determine if courses taken are job related pursuant to IRC Section 132(d) and submit the deduction on their personal tax return.

**All graduate level coursework, including the doctoral program, taken by an employee's spouse, domestic partner or dependent child through the employee fee waiver program continues to be reported as taxable income to the employee.

2019 Taxation Changes for Employees Who are Graduate Students

Effective with the 2019 tax year, 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 pay warrant (paycheck).

Graduate courses deemed job-related, pursuant to Internal Revenue Code Section 132(d), will no longer 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 may be adjusted annually.

A flat tax calculation of the taxed portion of the fee waiver benefits is as follows:

The HRSC office will notify you 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(opens in new window) taking graduate courses.

Unlike dependents, employees taking graduate classes have a calendar year total threshold. The the value of employee fee waivers will be tracked over the course of a calendar year and will be taxed on the value exceeding the $5,250 threshold.

Employees may consult a personal tax advisor to determine if courses taken are job related pursuant to IRC Section 132(d) and submit the deduction on their personal tax return.

When?

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

  • Spring = May 1st
  • Summer = Sept 1st
  • Fall = Nov 1st