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I have two Bachelor degrees and an MMath, not looking for any more degrees at this time, but I might be interested in taking some Japanese and Chinese language courses.

I'm working as a research programmer for a university in the US (IU), and they offer the option of

a subsidy toward the tuition costs, under Section 117 of the Internal Revenue Code.

What does this mean for me?

  • Would such subsidy be included in my income, and would I have to cover for the taxes as if I have received all such subsidies as real money in income?

  • What happens to the in-state / out-of-state tuition differential? I've moved from a different state for this job mid-summer, and might start taking courses right away in autumn.

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I am not a Lawyer or Accountant, and if you really worry, you should ask one of those or at the very least talk to human resources at your university.

But, based on my reading of the relevant law, part (d) [usually referred to, I guess, as Section 117-4] specifically states that if you are an employee of a university, then tuition reduction for you to take classes at said university should not count toward your gross income when calculating taxes.

The US code does not distinguish between in-state / out-of-state tuition.

Caveat: your local state laws may have different interpretation of "gross income".

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  • Section (d) (2) mentions below the graduate level. Does it mean that only undergrad tuition waiver is not included in gross income? E.g. it's only if, after all, I do decide to take grad CS courses, too, then any such benefit will be included in gross income?
    – cnst
    Jul 11, 2013 at 2:42
  • @cnst: like I said, I am not a lawyer or accountant. I can tell you what the words say and what I think they mean, but if you want to check if your interpretation of the law is correct, you have to consult a specialist.
    – Willie Wong
    Jul 11, 2013 at 8:00
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Again, not a lawyer, but from seminars I've taken and heard about from different people at different universities, the general rule is that things are taxable when you get a notification of a direct benefit from the university. In other words, if they send you a declaration that "we have paid X dollars as a tuition benefit," that may very well be taxable income. On the other hand, if it's handled internally as a bookkeeping issue—you get charged less, and some internal "fund" covers the "difference"—then there's no actual taxable benefit to be received.

However, it is not normally the case that tuition benefits are taxable. This is particularly important for graduate fellowships, because otherwise the fellows receiving the fellowship would be "receiving" tens of thousands of dollars in "gross income" and be responsible for taxes on that, even though they never actually get the money in the first place!

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