A Sea Of Red

Curious to know the thoughts of anyone working at LU (or any other educational institution) and taking grad classes or the spouse/kids taking grad classes. Have multiple people I work with taking classes alongside their spouse and getting hit with a $200-$300 tax withholding each paycheck starting next week. Obviously LU's just complying with the law and the annoyance lies squarely with the government, but anyone else in this situation, or know what boneheads in congress decided to put this into effect for 2015?

Not sure I entirely understand here. Are you working for someone other than LU and are they withholding extra b/c you're in grad school? Are you a GA receiving a stipend? If you fall into the latter, not sure how this is a new thing...taxes were withheld from my stipend check when I worked for the tennis teams.

Is it that they are having to pay taxes on the benefit of tuition being paid?

Yes, there is apparently a new tax. I don't know all the details, but I think there is a threshold ($5,000 of benefit) where taxes start to be withheld.

Yes, I work at LU, and although I don't take any grad classes, there's plenty of my coworkers that do.
Apparently a new IRS rules exists (I assume it's new?) that states every dime of grad classes taken by an employee over $5250 is taxed, and everything starting with the first penny for grad classes taken by your spouse or kids is taxed. To be clear this has never been done before. The kicker is that it's a 33%ish tax. So for example, a coworker has about $6,700 of taxable tuition benefits, which equals to roughly $2200 in Federal, Social Security, and Medicare tax. So she's getting docked about $275 per paycheck over the next 4 months. Some are even higher.

LU hasn't released any of the finer points, but ironically a pdf document from Drexel University spells everything out. Again, it's a government mandate, so everything in that document is what LU is being held to as well.

The bigger point here is that if your wife or kids take grad classes, you have to essentially pay 33% to the government (through mandated withholdings of your pay) for every penny spent. Hope that helps clarify.

https://www.drexel.edu/depts/compt/tax/ ... ission.pdf

well that is a great way to encourage people to continue their education...

thepostman wrote:well that is a great way to encourage people to continue their education...

I'm not saying the ACA is too blame, but.........

Purple Haize wrote:

thepostman wrote:well that is a great way to encourage people to continue their education...

I'm not saying the ACA is too blame, but.........

Are you joking, or is it actually the ACA?

Yes PH. Please explain.

I have no idea. But considering what crazy taxes are in there I would not be surprised

Purple Haize wrote:I have no idea. But considering what crazy taxes are in there I would not be surprised

Agreed. It's sad, and a big blow to a lot of employees (across all universities) and especially the spouses.

When I was a GA I would have been getting a paycheck with a negative balance at that kind of tax rate if that rule had been in place back then.

I haven't looked but I'd imagine the IRS is saying this is simply a taxable benefit in which case it will actually just be taxed at your income brackets. Remember w2 witholdings rates are not equal to your tax rates. You can blame a lot on ACA but unless your part of the upper crust it probably isn't doing much to you (on the tax side). If you think HR is over witholding you can fill out a new w4.

The IRS is always looking at benefits that employers provide to see if they are providing items that should be taxed. It's not a new strategy for the IRS.

rhezick wrote:The kicker is that it's a 33%ish tax.

Huh??

They don't tax that benefit at a higher rate than your regular taxable income. If you're paying 33% tax on that benefit, then you're paying 33% on all taxable income. All that they're doing is taking taxes on what they're calling a taxable benefit. Sounds like this lady needs to talk to a tax specialist (I can give her my wife's email address ).

phoenix wrote:

rhezick wrote:The kicker is that it's a 33%ish tax.

Huh??

They don't tax that benefit at a higher rate than your regular taxable income.

Did you skim the PDF from Drexel? From what is listed there, it seems like it is 25% + Social Security + Medicare = 32.65%

alabama24 wrote:

phoenix wrote:

rhezick wrote:The kicker is that it's a 33%ish tax.

Huh??

They don't tax that benefit at a higher rate than your regular taxable income.

Did you skim the PDF from Drexel? From what is listed there, it seems like it is 25% + Social Security + Medicare = 32.65%

Correct. I know, I was the biggest proponent of telling those I work with that something has to be amiss...that you can't be taxed at a higher level than what your bracket permits. However, I guess I was wrong.

"Why is the federal tax withholding rate so high? Can I change the withholding rate?

Income earned in addition to (supplemental) your regular salary is subject to the
highest tax rate that you pay. The IRS defines a flat supplemental tax withholding
rate, to be used for income over and above an employee’s regular salary, which is
pegged to the middle tax rate of the IRS graduated tax tables. This is currently set
at 25%."

Doing the math, here's what that amounts to...let's say your spouse wants to get their grad degree. Going just part time each semester (3 semesters) at $590/hour equals to 18 hours /year for a total of $10620 in tuition, all of which is taxed at 33%, requiring you to pay about $3500. Spread out over 24 paychecks (assuming salary), your looking at having your pay reduced by about $150/paycheck. In all fairness, your still getting a substantial discount off tuition for said spouse, but just not a free ride. You as the employee gets an exemption up to $5250, but your spouse/kids do not (for grad classes). More like a 2/3 ride for your spouse. Again, to avoid anyone taking this out of context, the blame rests squarely with the government and I'm glad LU is ensuring they are staying in compliance. Just is sad to see the benefit being reduced at the hands of the government.

I would assume this applies to undergrad student employees as well?

flamehunter wrote:I would assume this applies to undergrad student employees as well?

No just grad/post grad classes from what I see.

This issue has been going on for quite some time... The portions of the Internal Revenue Code (IRC) that are being applied to treat Continuing Education benefits as taxable income are not new. The link you see here is a ruling dating back to 2010 on this very topic.

From what I understand, the IRS never really enforced the policies very strictly, but because this benefit became virtually universal in the industry they changed their tune. I worked at LU up until a little while ago, and while HR didn't provide a document as detailed as the one provided by Drexel, they clearly made every employee aware of the changes coming in ample time.

http://www.irs.gov/pub/irs-lafa/103901f.pdf