I work for a university where one of the perquisites is a fee waiver
for tuition for my spouse and I. In the business world, and according
to the IRS, this would be classified as employer-provided educational
assistance.
My wife and I are both going to school for our MBAs and are enjoying
the fee waiver of tuition. I am not being taxed on the benefit due to
IRS code stating:
"If you receive educational assistance benefits from your employer
under an educational assistance program, you can exclude up to $5,250
of those benefits each year. This means your employer should not
include the benefits with your wages, tips, and other compensation
shown in box 1 of your Form W-2. This also means that you do not have
to include the benefits on your income tax return."
However, each pay period, my Federal Taxable Gross earnings are
increased by $207 to cover the benefit that my wife is receiving as
part of my employment at the university. So for five pay periods, my
Federal Taxable gross income is being increased by $207 to cover the
semester tuition benefit that I am recieving for my wife (5 x $207 =
$1035). The result is a deduction of ~$65 in my takehome pay due to
the taxes that I pay (all of them: Fed, State, Medicare and Social
Security.) My wife and I will be taking classes for the next year and
a half and the total tax on the educational benefity will be roughly
$1950.
Here is where I question the system. The doctrine of constructive
receipt states "that an individual must pay taxes on benefits with
monetary value when recieved". I am doing this every pay period.
However, there are specific tax exempt items that are not taxable
income for an individual: health insurance, educational assistance,
legal assistance, child-care, discounts, flexible-spending accounts,
and life insurance.
If I were to add my wife, or childern if I had any, to my
health-insurance, my taxable income would not increase. Even though
they are the recipients of the benefit, I too am a recipient
indirectly, I would not be taxed on their benefit. The same goes for
life insurance. I pay extra for additional life insurance, my wife is
the beneficiary, but that does not affect my tax situation in the same
way the educational assistnace does.
I would like to know the following:
Is the university correct in their processes for requiring me to pay
tax on the educational benefit my wife recieves, due to my employment,
even though other spousal benefits: life insurance, health insurance,
etc. are tax exempt?
If the university is incorrect, how do I get the process changed,
because it cannot be changed from the inside.
Regards,
Brian |
