Residency & Taxation

California Residency Requirement

  • The fee waiver applies only to certain fees incurred by California residents.
  • Employees who do not meet in-state residency requirements must pay non-resident tuition charges based enrolled units.
  • For residency questions, contact Admissions at: 408-283-7500 or by email: admissions@sjsu.edu.

Taxation

The table below summarizes taxable and non-taxable courses:

Eligible Participant Course Level Tax Status
CSU Employee Undergraduate
Graduate		 Nontaxable
Nontaxable up to $5,250
Employee's Spouse/Dependent Child Undergraduate
Graduate		 Nontaxable
Taxable
Employee's Domestic Partner Undergraduate
Graduate		 Taxable
Taxable

Employees may consult with their personal tax advisor to determine if courses taken are job related and can include the deduction on their personal tax return, if eligible.

Important: Second bachelor’s degree and Post baccalaureate:

  • Please note that program eligibility and tax treatment are separate. For tax purposes, a course taken for credit toward, or normally taken as part of, an advanced degree program is treated as graduate-level education, even if the course has an undergraduate course number.
  • Employee Fee Waiver benefits for this education may be excluded under IRC section 127 up to the annual exclusion limit.
Why are courses taxable?
  • The Tuition Fee Waiver Program is a fringe benefit and as such has strict reporting requirements established by the Internal Revenue Service [Internal Revenue Code Sections 117(d), 127 and 132(d)] and the State of California Controller’s Office. The reporting requirements state that the fringe benefit must be taxed in the calendar year in which the benefit was received.
  • Contact the Tuition Fee Waiver Program Coordinator if you have any questions.
  • For tax purposes, a course taken for credit toward, or normally taken as part of, an advanced degree program is treated as graduate-level education, even if the course has an undergraduate course number. Employee Fee Waiver benefits for this education may be excluded under IRC section 127 up to the annual exclusion limit.
Which courses are taxable?
  • Graduate/Doctorate level courses taken by you, the employee, which exceed the $5,250 threshold. The tax will be withheld from your paycheck. You may consult a personal tax advisor to determine if courses taken are job related pursuant to IRC Section 132(d) and submit the deduction on your personal tax return.
  • Graduate level courses taken by your qualified dependent will be reported as imputed taxable income to you, the employee.
  • Undergraduate level courses taken by your domestic partner will also be considered imputed taxable income.
Which courses are not taxable?
  • Undergraduate level courses you, the employee, take are non-taxable.
  • Graduate/Doctorate fees for you, the employee, are non-taxable if the total fees waived do not exceed $5,250 in a calendar year.
When are the taxes taken?
  • The imputed income is reported to the State Controller's Office once a semester after enrollment census. There is no adverse tax reporting on imputed income when an employee or an employee’s dependent drops courses. 
  • The additional tax withholdings are deducted from the employee’s first and second paychecks following this reporting.
How much will I be taxed?
  • The flat rate tax method is used to determine the amount of imputed tax an employee is subject to if the courses they or their dependents take are taxable.
  • The current flat tax rate is 36.25%; and may be adjusted annually.
  • The tax is comprised of:
    • Federal Tax (currently 22%)
    • State Tax (currently 6.6%)
    • Social Security Tax (6.2%) (if the employee is subject to this tax on normal wages)
    • Medicare Tax (1.45%) (if the employee is subject to this tax on normal wages)
  • Calculate the amount:
    • Total Fees Above Threshold x Flat Tax Rate
    • Example:
      • Total Value of Fee Waiver = $8,750
      • Threshold Amount = $5,250
      • Flat Tax Rate = 36.25%
      • $8,750 - $5,250 = $3,500 Total Taxable Fees
      • $3,500 x 36.25% = $1,268.75 Imputed Tax Value (withheld from two consecutive paychecks)

References

Applicable Internal Revenue Code (IRC) sections:

  • Qualified Tuition Reduction under Internal Revenue Code Section 117(d); and
  • Educational Assistance Programs under Internal Revenue Code Section 127;
  • Working Condition Fringe Benefits under Internal Revenue Code Section 132(d) (for employees to pursue through their personal tax advisor, if applicable).
Questions? Contact the Tuition Fee Waiver Program Coordinator for more information.