Tax Calculation for Taxable Tuition
If you submit a tuition waiver for a spouse or dependent child(ren) and they are taking graduate or doctoral level classes, the tuition reimbursement is taxable. For the fall and spring semesters, the maximum number of pay periods to spread the payments over is eight. In order to take advantage of the maximum number of payments, the payroll office will need to receive the approved tuition waiver from Human Resources at least 1 week before the semester begins for both fall and spring semesters.
Below are three examples of the impact that taxable tuition could have on your pay. The examples are:
1) Getting the waiver in on time and spreading it over eight pays,
2) Turning the waiver in late and having it spread over only five payments, and
3) The waiver is turned in at semester's end and having to pay the entire tax all at once.
Example 1: You are turning in a waiver for 3 graduate credits @ $366/per credit hour. The total waiver would be for $1098. To spread the payments over 8 pays, it would be broken down at 8 payments of $137.25 and the tax would be calculated as follows:
| Tax Calculation on $137.25: | ||
|---|---|---|
| Tax Type | Tax Rate | Tax Amount |
| Federal | 25% | 34.31 |
| State | 3.9% | 5.35 |
| Social Security | 6.20% | 8.50 |
| Medicare | 1.45% | 1.99 |
| Total tax per pay on tuition: | 50.15 | |
Example 2: If a tuition waiver is turned in late and there are only five pays left to deduct the tax on that semester’s tuition it would be as follows: Taking 3 graduate credits @ $366 = $1098 total tuition spread over 5 pays would be taxed on $219.60 per pay and the tax would be calculated as follows:
| Tax Calculation on $219.60: | ||
|---|---|---|
| Tax Type | Tax Rate | Tax Amount |
| Federal | 25% | 54.90 |
| State | 3.9% | 8.56 |
| Social Security | 6.20% | 13.61 |
| Medicare | 1.45% | 3.18 |
| Total tax per pay on tuition: | 80.25 | |
Example 3: If you wait until the end of the semester to turn in the waiver, you would have to pay tax on the entire amount of $1098 from one pay and it would be calculated as follows:
| Tax Calculation on $1098.00: | ||
|---|---|---|
| Tax Type | Tax Rate | Tax Amount |
| Federal | 25% | 274.50 |
| State | 3.9% | 42.82 |
| Social Security | 6.20% | 68.07 |
| Medicare | 1.45% | 15.92 |
| Total tax per pay on tuition: | 401.31 | |
NOTE: Be sure to get tuition waivers turned in prior to calendar year-end to ensure proper reporting on your W-2.
For information on the tuition waiver program go to the Human Resources website at http://www.hrs.cmich.edu/benefits/tuitionwaiver.htm