| To: | Fiscal Officers, Senior Accounting, Payroll and Personnel contacts |
| Subject: | Educational Assistance Reimbursements |
| Sent Date: | 01/24/2008 |
From: Darla Rankin, Administrator
Division of Statewide Accounting
Brandon Woolf, Administrator
Division of Statewide Payroll
Subject: Educational Assistance Reimbursements
The State Controller's Office has created a new earnings code and a new expenditure subobject code to accommodate the federal income tax withholding rules for educational assistance reimbursements.
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All educational assistance costs reimbursed to state employees are taxable unless the reimbursement meets the "Working Condition Benefit" definition as described in IRS publication 15-B, Employer's Guide to Fringe Benefits (http://www.irs.ustreas.gov/pub/irs-pdf/p15b.pdf), which states:
Certain job-related education you provide to an employee may qualify for exclusion as a working condition benefit. To qualify, the education must meet the same requirements that would apply for determining whether the employee could deduct the expenses had the employee paid the expenses. The education must meet at least one of the following tests.
- The education is required by the employer or by law for the employee to keep his or her present salary, status, or job. The required education must serve a bona fide business purpose of the employer.
- The education maintains or improves skills needed in the job.
However, even if the education meets one or both of the above tests, it is not qualifying education if it:
- Is needed to meet the minimum educational requirements of the employee's present trade or business, or
- Is part of a program of study that will qualify the employee for a new trade or business.
In order to achieve compliance with the IRS regulations regarding ‘taxable’ educational expenses, a new payroll earnings code 'TTR - Taxable Tuition' and STARS subobject code ‘5073’ was created to allow agencies to reimburse their employees for educational assistance via payroll processing.
NOTE: To ensure accurate taxing of all ‘taxable educational assistance reimbursements’, they must be made through the payroll system and cannot be entered directly into STARS.
Once the ‘TTR’ earnings and lump sum amount is processed through payroll, a payment will be made to the employee (less applicable taxes and deductions) and then payroll will automatically forward the appropriate amount and coding via payroll labor distribution files to STARS for posting to the new expenditure sub-object code 5073 with the regular payroll transaction code of 326.
No changes have been made to the processing of all ‘non taxable reimbursements’. They should continue to be coded with sub-object 5070 and processed directly through STARS. This includes registration for Conferences and Seminars.
If you have questions or need help determining if an educational expense meets the working condition benefit definition or not, please review the IRS publications and guidelines or contact the IRS. If you have questions about how to process a reimbursement for educational expenses, please call Leslie Mickelsen at 208-334-2394.
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