Legislation that would permanently reinstate the tax code provision (Section 127) that excludes some tuition assistance reimbursements from federal taxes has not yet been passed by Congress. This means that these tuition assistance reimbursements became taxable to employees effective January 1, 1995. These reimbursements include:
- Fees, such as application, registration, library, laboratory, examination and graduation fees.
- Tuition for graduate courses (not taken as part of an undergraduate degree program).
- Tuition for private study.
Tuition Assistance participants may remember that in August 1993, Section 127 was reinstated (retroactively to July 1, 1992) and the benefit generally was not taxed during 1993 and 1994.
Because of the possibility that the law would be retroactively reinstated again, MIT elected to delay withholding taxes on these reimbursements for 1995. Since Congress has not yet acted, MIT will begin withholding taxes on 1995 taxable tuition reimbursements effective with September paychecks.
"If we were to wait and no reinstatement is enacted, we would have to withhold the entire amount late in the year as the holidays approach," Frederick Crowley, assistant comptroller, said. "By beginning withholding now, we hope to ease the impact on the affected tuition assistance recipients." If a reinstatement is enacted, Mr. Crowley said, the withheld taxes will be refunded.
Many types of reimbursements continue to be nontaxable regardless of whether or not Section 127 is reinstated, including:
- Tuition for undergraduate study at educational organizations.
- Tuition and related fees for IRS-defined job-related study.
For more information on tuition assistance, call x3-5000 and press 2161 when the recording begins to request a plan booklet or tuition assistance forms. If you have questions that are not addressed, Shonda Aikens, the tuition assistance administrator, can help. You can reach her at or x3-0497.
Please submit tuition assistance request forms four weeks before beginning a course. Within a few weeks you will be notified whether or not your request is approved, the total amount you will be reimbursed, and the amount of the reimbursement that will be taxable to you.
A version of this article appeared in MIT Tech Talk on August 30, 1995.