Taxability Guidelines

This page provides a general overview of the taxability of various types of tuition reduction. It does not constitute tax advice. Each employee or recipient of tuition remission is strongly encouraged to discuss all questions related to tax liability with her or his tax advisor. See also the Tax Benefits for Education: Information Center.

Faculty/Staff

• Undergraduate: Not Taxable IRS Sec 117(d)
• Graduate: Annually, the first $5,250 is Not-Taxable. Any amount over $5,250 is Taxable IRS SEC 127
• Notes: Federal law determines the federal tax treatment of tuition benefits for employees.

Spouse (legally recognized by federal tax law) or widow/er (provided Employee died while employed as a full-time faculty member)

• Undergraduate: Not Taxable IRS Sec 117(d)
• Graduate: 100% Taxable
• Notes: Federal law determines the federal tax treatment of tuition benefits for spouses.

Other Qualified Adult (OQA) – Not legally recognized by federal tax law.

• Undergraduate and Graduate: 100% Taxable
• Notes: The extension of tuition reduction benefits to an OQA requires the inclusion of the value of such payments in the gross income of the employee.

Federal Tax Dependent who is Employee's:

• Biological Daughter/Son
• Stepdaughter/Stepson
• Legally adopted Daughter/Son

A child who does not qualify as a dependent under the “Qualifying Child” rules may qualify as a dependent as a “Qualifying Relative” ²

• Undergraduate Full-Time¹: Not Taxable IRS Sec 117(d)
• Graduate: 100% Taxable
• Undergraduate Part-Time: Not Taxable IRS Sec 117(d)
• Notes:
  • Undergraduate Full-Time or Graduate: Employee must claim the student as a dependent on the employee’s federal tax return for the year in which the tuition reduction is granted.
  • Undergraduate Part-Time: Part-time must qualify as a dependent under “Qualifying Relative” rules.

Employee's:

• Biological Daughter/Son
• Stepdaughter/Stepson
• Legally adopted Daughter/Son

If Employee is divorced or separated from child’s other parent who claims child as a tax dependent.

• Undergraduate Full-Time¹: Not Taxable IRS Sec 117(d)
• Graduate: 100% Taxable
• Undergraduate Part-Time: Not Taxable IRS Sec 117(d)
• Notes:
  • Undergraduate Full-Time or Graduate: Divorced/separated spouse must claim the student as a dependent on his/her tax return for the year in which tuition reduction is granted to the employee.
  • Undergraduate Part-Time: Part-time must qualify as a dependent under “Qualifying Relative” rules.

Dependent of OQA

Must meet the IRS definition of a dependent.¹ Alternatively, a child who does not qualify as a dependent under the “Qualifying Child” rules may qualify as a dependent as a “Qualifying Relative” ²

• Undergraduate and Graduate: 100% Taxable
• Notes: The extension of tuition reduction benefits to the dependent of an OQA, requires the inclusion of the value of such payments in the gross income of the employee.

Special Lecturer

• Undergraduate: Not Taxable IRS Sec 117(d)
• Graduate: Annually, the first $5,250 is Not-Taxable. Any amount over $5,250 is Taxable IRS SEC 127
• Notes: Eligible for up to 12 credits per appointment year. Credits are transferrable to spouse & dependents. Maximum of 12 total credits allowed. Transferring Graduate credits become 100% taxable.

¹ IRS regulations define a qualifying child as an individual who is under the age of 24 and a full-time student for at least five months of the year. A qualifying child who is a full-time student at another college or university is eligible for tuition reduction as a guest student at Oakland University.

² IRS regulations define a qualifying relative as someone who meets the relationship test, whose gross income is less than the “Standard Personal Tax Exemption”, and meets the 50% support test.