I had to do a little digging, but it looks like Tuition Remission is not a defined term from a government standpoint, but used loosely by states and institutions to describe their employee benefit, many of which look to be modeled off one another. So far as I can tell, most of the Tuition Remission programs I looked at today from Massachusetts and New York, for example, meet the qualifications outlined in IRS Pub 15-B of an Educational Assistance Program. However, I do not see where it would qualify under the scholarship or fringe benefit allowance, at least not as I'm reading it. Let me know if I'm missing something:
- From Pub 970 Chapter 8, "The 10% additional tax doesn't apply to the following distributions...Employer-provided educational assistance (see chapter 11 )..."
- From Pub 970 Chapter 11, "Working condition fringe benefit. However, if the benefits over $5,250 also qualify as a working condition fringe benefit, your employer doesn't have to include them in your wages. A working condition fringe benefit is a benefit which, had you paid for it, you could deduct as an employee business expense. For more information on working condition fringe benefits, see Working Condition Benefits in chapter 2 of Pub. 15-B, Employer's Tax Guide to Fringe Benefits."
- From IRS Pub 15-B (2017), From IRS Pub 15-B (2017): If you provide an employee with assistance exceeding $5,250, you must include the value of these benefits as wages, unless the benefits are working condition benefits. Working condition benefits may be excluded from wages. Property or a service provided is a working condition benefit to the extent that if the employee paid for it, the amount paid would have been deductible as a business or depreciation expense.
Working Condition Benefits
This exclusion applies to property and services you provide to an employee so that the employee can perform his or her job. It applies to the extent the employee could deduct the cost of the property or services as a business expense or depreciation expense if he or she had paid for it. The employee must meet any substantiation requirements that apply to the deduction. Examples of working condition benefits include an employee's use of a company car for business, an employer-provided cell phone provided primarily for noncompensatory business purposes, and job-related education provided to an employee.
This exclusion also applies to a cash payment you provide for an employee's expenses for a specific or prearranged business activity for which a deduction is otherwise allowable to the employee. You must require the employee to verify that the payment is actually used for those expenses and to return any unused part of the payment.
I just don't see how tuition would be a reimbursable business or depreciation expense, which seems to be the requirement to be considered a fringe benefit. I'm interested in how you determined this to be a fringe benefit, though, because personally I don't think the employee should be punished with the additional 10% penalty on a withdrawal if their employer offers a program like Tuition Remission. Let me know your thoughts.
VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.