Tuition Benefit for Employees


General Tax Information

  • Indiana University offers a tuition benefit to eligible employees in the form of a tuition reduction for courses taken. This benefit is established under the IRC Section 117 regulations and does not provide preferential tax treatment of the IU tuition benefit for graduate-level courses. Under Section 117, tuition benefit provided for graduate-level courses is considered taxable income to the recipient. 
  • Beginning in 2017, Indiana University will also offer a benefit for tuition under IRC Section 127. This allows for a certain amount of tuition benefit (graduate or undergraduate) to be considered exempt from taxation based on the annual limit set forth by the IRS. Currently, the amount is $5,250.

Tax Processing

  • University Tax Services processes the taxable tuition benefit for employees and adds the amounts to the employee's paycheck(s) to collect the additional taxes. Please see the University Human Resources Tuition Benefit page for a current listing of the tuition benefit rates.
  • To determine what amount will be taxable, find the correct program, multiply by the semesters for the year and then subtract the $5,250 for the Section 127 benefit. This will provide an estimate of the amount of taxable income that will be added to paychecks throughout the year.An email is sent to each employee by University Tax Services to notify employee of the additional taxable income. This addition of income will reduce the employee’s net paycheck through the additional taxes for the tuition benefit.
  • For more information regarding the benefit provided, please visit the University Human Resources Tuition Benefit page.For more questions regarding the taxation of the tuition benefit, please contact University Tax Services.

Frequently Asked Questions

Why and when is the tuition benefit taxable?

In general, the tuition benefit provided by Indiana University is only taxable for graduate courses. This is an IRS mandated ruling for universities that offer free or reduced education. At IU, the tuition benefit is provided under IRC Section 117, which is specific to universities and under Section 127 which allows the first $5,250 of tuition benefit to be exempt from taxation. Section 117 applies to employees, spouses and dependents and Section 127 is allowed only for employees. Once the amount of graduate tuition benefit has reached $5,250, additional amounts will be added in payroll via paychecks to collect the additional taxes required by the IRS.

Which paychecks will have the extra taxes taken?

Below is an estimate of when the processing takes place to collect the additional taxes. This listing is subject to change based on the payroll schedule. University Tax Services sends an email generally 2-4 weeks in advance of the payroll to alert employees of the additional taxes.

Semester Month Processed  
Spring  April, May  
Summer July, August  
Fall September, October  
Winter  February, March  
How much will be taken in taxes?

In general, the tax calculation will differ per person based on what elections were made for marital status, exemptions, additional taxes, etc. However, an estimate can be made for budgeting purposes based on the rates below. Please note, these are estimates ONLY. The actual amount taken on a paycheck can differ.

 

Type of Tax Estimated Rate
Federal 15-25%
Social Security & Medicare 7.65%
State (Indiana) 3.23%
Local (Indiana)

1%

TOTAL

27%-37%

 

The amount of total tuition benefit received for a semester can be found in the Student Center billing details and is also provided in the email provided by University Tax Services. Please note the amounts may differ based on the processing schedule and the Section 127 exemption applied. A detailed listing of rates can be found on the Paycheck Taxes link.