The charts below provide a general overview of the tax liability of the Qualified Tuition Reduction (QTR) and Domestic Partner Tuition Program (DPTP) benefits. This does not constitute tax advice. We strongly encourage you to discuss all questions related to tax liability or the amount that may be owed in taxes with a tax advisor.
| UNDERGRADUATE TUITION | TAXATION |
|---|---|
| Employee or Retiree* | The amount of the QTR benefit is not taxable. |
| Spouse or dependent child | The amount of the QTR benefit is not taxable. |
| Domestic partner/dependent child of domestic partner | The DPTP benefit amount will be awarded on the student’s Form 1098-T as if they received a scholarship. The amount of the DPTP benefit is not taxed through payroll and does not come out of your paycheck. |
| U of A affiliate | QTR will be taxed by the affiliate’s employer, and the benefit will be included in W-2 wages. |
| GRADUATE TUITION | TAXATION |
|---|---|
| Employee or Retiree* | The first $5,250 of the QTR benefit is exempt from taxation. Any amount in excess of $5,250 per calendar year is taxed through payroll and comes out of your paycheck. |
| Spouse or dependent child | The full amount of the QTR benefit is taxed through Payroll Services and comes out of your paycheck. |
| Domestic partner/dependent child of domestic partner | The DPTP benefit amount will be awarded on the student’s Form 1098-T as if they received a scholarship. The amount of the DPTP benefit is not taxed through payroll and does not come out of your paycheck. |
| U of A affiliate | QTR will be taxed by the affiliate’s employer, and the benefit will be included in W-2 wages. |
*University retirees will receive a W-2 form at the end of the year.
About Taxable QTR Benefits
The taxable QTR benefits described above are taxed as earned income according to your income bracket. The amount deducted from your paycheck will depend on your gross pay, tuition savings, and current tax withholding rate. Taxation starts after the 35th day of the university’s main campus semester start date. Please refer to the U of A Academic Calendar.
Employees subject to taxation will receive a notice from Payroll Services that contains their QTR amounts per semester, how many pay periods the taxation will affect, and the amount that will be added to their taxable gross income per paycheck. This notice can be found in UAccess Employee > Employee Main Homepage > Payroll and Compensation > Qualified Tuition Reduction. You will not receive a QTR notice if your benefit amount is not taxed through payroll.
Paycheck Modeler
The Paycheck Modeler in UAccess Employee may help you calculate the effect of QTR on your paycheck. Find the Paycheck Modeler in the left menu of the UAccess Payroll & Compensation tile.
Taxation Frequently Asked Questions
Under Internal Revenue Code Section 127, tuition reduction for graduate-level courses is taxed as earned income.
Payroll Services will send you a letter advising you of the amount that will be taxed.
You can use the Paycheck Modeler in UAccess Employee Self-Service to calculate the effect on your paycheck. Navigate: Employee Main Home Page > Payroll and Compensation > Paycheck Modeler.
The IRS Tax Withholding Estimator may help you determine whether to change your withholding rate.
You have to withdraw the application by a certain date, or else you will still be subject to taxation. You cannot always stop taxation if it isn't withdrawn in time. Please check with Payroll Services.
You may change your tax withholding rate; however, you are still liable for the taxes.
To change your tax withholding rate, log in to UAccess Employee. Navigate: Employee Main Home Page > Payroll and Compensation > W-4 Tax Forms or State Forms
The IRS Tax Withholding Estimator may help you determine whether to change your withholding rate.
The value of any taxable portion of QTR is simply added to your taxable gross income; it does not appear in a separate box. You will see the QTR amount added to your taxable gross income in boxes 1, 3, 5, and 16 on the W-2 form.
The QTR notice will contain your QTR amounts per semester/session, how many pay periods the taxation will affect, and the amount that will be added to your taxable gross income per paycheck.
You will not receive a QTR notice if your benefit amount is not being taxed through payroll. If you are the student, your undergraduate tuition is not taxed. If you are a graduate students, your tuition reduction might be under the $5,250.00 EAP amount, in which case you would not be taxed.