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Guest Article

(From the April 19, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Qualified Tuition Reductions for School Employees

The IRS recently clarified the availability of the income exclusion under IRC § 117(d) for qualified tuition reduction in the case of joint-degree programs, and where graduate-level courses are taken other than to fulfill a graduate degree.

Clarification of Eligible Education

IRC § 117(d) excludes from the gross income of school employees (and their spouses and dependent children) any qualified tuition reduction for attending that school. A "qualified tuition reduction" is a reduction in the tuition for education below the graduate level. (Under a special rule, graduate students who are engaged in research or teaching at the school are not subject to the requirement that the education be "below the graduate level" in order for the tuition reduction to be excludable from income.)

In Information Letter 2009-0247, the IRS addressed the general exclusion requirements and advised:

For purposes of the tax exclusion, "education below the graduate level" generally refers to any course which is not part of a course of study conducted at an educational organization requiring a bachelor of arts degree or a bachelor of science degree or equivalent for admission into the program, and which leads to a graduating degree. A course which is part of a course of study leading to a graduate level degree is not considered "education below the graduate level," even if the course is not taken in order to fulfill requirements for a graduate level degree, unless it is taken toward a degree below the graduate level.
In the case of educational organizations conducting joint BA/JD, BA/MD, or similar joint-degree programs, the individual courses of study must be analyzed to determine the permissibly excludable education; those courses taken in satisfaction of the BA or BS degree requirements are considered "education below the graduate level" even if, for example, they are taken in a fifth or sixth year of study. Similarly, a graduate level course taken in the freshman year solely in satisfaction of the JD or MD degree requirement would not constitute "education below the graduate level."

Information Letter 2009-0247 may be found on the IRS web site at: www.irs.gov.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact:

Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955.

BenefitsLink is an independent national employee benefits information provider, not formally affiliated with the firms and companies who kindly provide much of the content and advertisements published on this Web site, including the article shown above.