Graduate Tuition Benefits
ON THIS PAGE:
- Taxability of Graduate Tuition Benefits
- Calculating Your Estimated Withholding
- Viewing Your Personal Withholding Calculations
- Paying Your Billed Balance
- IRS “Job-Related Business Expense”
If you choose to pursue a graduate degree at Penn, you will first need to research and apply directly to your program of interest just as any outside candidate would. Penn’s website contains a listing of graduate programs, including those especially suited to the schedule of the working professional. Some schools/centers at Penn require full-time participation in a graduate degree program and do not allow part-time study, or may only offer courses during your working hours; this may limit what degree you can seek. For additional academic information, contact the academic advisors at the school/program in which you’re interested. Once you’re enrolled in a program, you can review some of our tips for registering for courses, requesting the benefit, and monitoring your account.
The tuition benefits you receive for courses taken through a graduate program (degree or non-degree) are considered taxable income by the government once you exceed $5,250 in benefits for a calendar year. These taxes are withheld directly from your benefit. Your graduate tuition benefits are subject to withholding even if you are a non-degree student or take undergraduate courses while enrolled in a program that is classified as graduate.
Under current law, graduate tuition benefits for faculty and staff are subject to federal income tax, FICA (Social Security tax), Medicare tax and city wage tax to the extent that the benefits exceed $5,250 per calendar year. This means you can receive up to $5,250 in tuition benefits for each calendar year tax-free. Tuition benefit payments that exceed $5,250 in the calendar year are subject to withholding at approximately 36%. Any applicable taxes are withheld directly from your benefit and the remaining amount (net benefit) is awarded to you as the scholarship. In other words, Penn is covering your tuition charges per the benefit plan (gross benefit), but is deducting the taxes from your benefit and paying them on your behalf so nothing is altered in your actual paycheck. After the Tuition Benefit Office has made the payment of the net benefit to your student account, you’ll have a balance left on your account which will include the amount withheld for taxes, in addition to any other fees or charges that aren’t covered by the benefit. Please see the example below for more detail.
To calculate your withholding, you’ll need to know what your program’s tuition, technology, and general fees are for the term and whether you have already used up your full $5,250 exemption for the year. The following chart is an example of how to do the calculations on your own. Please note that for purposes of this example, the fees are fictitious and the program does not charge a technology fee (only the tuition and general fees).
Tuition + General Fee (for 2 course units) = Gross Benefit
Example: $10,964 + $624 = $11,588
Gross Benefit - $5,250.00 Exemption (once per calendar year) = Amount subject to withholding
Example: $11,588 - $5,250 = $6,338
Tax rate (36% for non-resident) x Amount subject to withholding = Withholding
Example: .36 x $6,338 = $2,281.68
Gross Benefit - Withholding = Net Benefit which is paid to your student account
Example: $11,588 - $2,281.68 = $9,306.32
The amount subject to withholding is reported to the IRS as a part of your earnings and will appear on your W-2. The withholding, or taxes withheld from the benefit, is paid to the government and reported on your W-2 as taxes paid. The net benefit (after withholding has been deducted) is paid to your student account. You are then responsible for paying the remaining balance on your student account. The balance left on your student account is generally equal to what our office withheld for tax purposes, although it can also include any additional fees that the benefit does not cover.
Our office withholds using the maximum tax rate for the four taxes on which we withhold, so you should not owe any additional taxes on the tuition benefit and may even receive some of it back. However, the addition of the tuition benefit to your income could place you into a higher tax bracket which could affect your withholding expectations on your personal salary. You as the taxpayer are responsible for making any payroll withholding adjustments, if desired, and settling your tax liability at year-end filing.
After requesting payment of the benefit, you can return to your tuition benefit account the next day (as long as charges are already on your student account) to view the amount withheld for taxes and the amount of your net benefit that will be paid to your student account. Choose “Tuition Benefits for Myself,” which will bring you to your Benefits History box. This outlines your current and past requests. If you click on “View Details” for a term, it will give a detailed account of your benefit for that term.
- Your “covered charges” represent your entire benefit before taxes have been deducted; this represents 100% of the tuition, general, and technology fees for the maximum two course units your benefit covers.
- In parentheses, you will see how much of your gross benefit is being considered taxable income. You receive $5,250 in tax-free benefits each calendar year from the government so the first time you use your benefit in a calendar year, we subtract $5,250 from your gross benefit to get your taxable benefit.
- “Less tax withholding” indicates how much is being withheld (this is approximately 36% of the taxable portion of your benefit in parentheses).
- Your “Benefit Amount” is how much was paid to your student account after your taxes were withheld.
Once you use up the $5,250 exemption for the calendar year, the entirety of your benefit is considered taxable income so the amount we withhold for the remainder of the year will be much higher. In every case, however, the benefit is still covering your eligible charges at 100% (your "covered charges"). You can view the withholding on your benefit on a term by term basis through your Benefits History box.
We understand that the taxes can be significant and urge anyone concerned about this to contact Student Financial Services about payment options (including loans), payment deadlines, and billing procedures.
You may be able to recover some of the taxes withheld if you’re eligible to deduct the cost of graduate education from your gross income as a job-related business deduction. The IRS ruling that applies to the eligibility of education expenses as a business expense can be found at IRS publication #970 (check chapters 11 and 12 to see if you qualify).
If you believe you qualify under the IRS regulations, the Tuition Benefit Office still withholds the taxes from your benefit payment in the same manner as for all employees. You would file at the end of the year to deduct your education expenses from your income. If you are considering this, we urge you to consult with the IRS or a tax professional to ensure you are aware of proper filing procedures or any special documentation from your supervisor or department that may be advisable.
Visit our FAQs for more information.
If you have questions about:
- your statement or payment deadlines, contact Student Financial Services.
- course charges on your bill, contact your educational program.
- the amount or application of your tuition benefit, contact the Tuition Benefit Office.