Taxation and Tuition Benefits

Carnegie Mellon University offers tuition benefits for eligible faculty and staff, as well as their dependent children. The tax implications of these benefits can vary depending on several factors, including the level of study, the purpose of the courses and your state of residence. This guide provides an overview of the federal and state tax rules related to tuition benefits.

On this page:

• Taxation of Tuition Benefits for Faculty and Staff
• At a Glance: Federal Taxation of Tuition Benefits for Faculty and Staff
• Supervisor Approval and Certification
• Taxation of Tuition Benefits for Dependent Children
• How Taxes Are Withheld

Taxation of Tuition Benefits for Faculty and Staff

Undergraduate Courses

• Tuition Benefits for Job-Related Undergraduate Courses:
  • Carnegie Mellon: No federal, state, or local taxes
  • Other Institutions: No federal tax, but state and local taxes may apply depending on your state of residence
• Tuition Benefits for Non-Job-Related Undergraduate Courses:
  • If you already have an undergraduate degree and aren't pursuing a second one:
    • Carnegie Mellon: Federal tax; no state, or local taxes
    • Other Institutions: Federal tax; state and local taxes may apply depending on your state of residence
  • If you don't have an undergraduate degree or are pursuing a second one:
    • Carnegie Mellon: No federal, state, or local taxes
    • Other Institutions: No federal tax, but state and local taxes may apply depending on your state of residence

Graduate Courses

• The tuition benefits provided for graduate-level courses are federally tax-exempt up to $5,250 in a calendar year.
• To qualify for tax-exempt tuition benefits over $5,250 for your graduate-level education, your courses must meet the IRS job-relatedness criteria:
  1. Course Requirements — Either (a) or (b) must be true, and both (c) and (d) must be true:
     1. The education maintains or improves skills required in your current job OR
     2. The education is required by your employer or the law to keep your present salary, status or job. The required education must serve a bona fide business purpose of your employer AND
     3. The coursework is not needed to meet the minimum educational requirements of your current job AND
     4. The coursework is not part of a program or study that will qualify you for a new trade or business, nor is it a Ph.D. or other doctoral program. (As long as the job-related course or program "improves skills needed for the current job based on the skills identified in the job description," it does not qualify you for a new trade or business.)
  2. Supervisor Certification: Your supervisor must certify that your courses are job-related. This certification is completed through the Supervisor Approval Form as part of the application for tuition benefits process.
• State and Local Taxes:
  • Courses at CMU are not subject to state or local taxes.
  • For courses taken at another institution, state and local taxes may apply depending on your state of residence.

At a Glance: Federal Taxation of Tuition Benefits for Faculty and Staff

Supervisor Approval and Certification

It is the responsibility of the employee's supervisor to review the Supervisor Approval Form [pdf] in its entirety and certify the following:

• Section 5: Courses Related to Carnegie Mellon Career — Courses taken at an accredited institution other than Carnegie Mellon, or degree program of which they are a part, are Carnegie Mellon career related. For purposes of this supervisor certification, Carnegie Mellon career related means the courses or degree program of which they are a part relate either to the employee’s current employment position at Carnegie Mellon or a role/responsibility the employee plans to hold in the future at Carnegie Mellon.
• Section 6: Courses Related to Current Employment Position — Whether or not the employee's graduate-level courses (or degree program of which they are a part) are job related per the IRS job related criteria detailed in the form. This supervisor certification ensures that Carnegie Mellon is in compliance with IRS regulations regarding taxation of tuition benefits.

See Applying for Tuition Benefits for complete instructions.

Taxation of Tuition Benefits for Dependent Children

• Children Attending Carnegie Mellon: Not subject to federal, state or local taxes
• Children Attending Another Institution: Benefit is subject to state and local taxes for faculty and staff; not subject to federal taxes

How Taxes Are Withheld

• Applicable taxes will be withheld from your salary, not from the benefit.
• Taxes must be withheld in the year in which the benefit was received (i.e., when the check is issued), regardless of when the courses are taken.
• Taxes assessed on your tuition benefits will be withheld from your pay by Carnegie Mellon in three monthly installments (for those paid monthly) or in six biweekly installments (for those paid biweekly).
• Taxation will begin with the next pay following your application approval, and will be withheld across three months, or the number of months remaining in the calendar year, whichever is less.
• Changes to your benefit level in the middle of a semester (for example, adding or dropping a class) will be reflected in the taxes withheld in the remaining months.

Example

The following example of federal taxation uses an approximate federal withholding rate of 30% and examples of approved tuition benefit amounts. It is meant to illustrate scenarios to help you estimate taxation for financial planning purposes, not provide an exact amount.

If your tuition benefits total $6,320 for the fall 2024 term (and it is your first term for calendar year 2024), your taxable tuition benefit over the course of three months is $1,070 ($6,320 tuition total − $5,250 federal exemption). The additional tax withheld from your paycheck over three months is $107 per month ($1,070 taxable tuition benefits × 30% withholding rate = $321/3 months = $107).

If your tuition benefits total $6,320 for the spring 2025 term, your taxable tuition benefit over the course of three months would be the same as the fall 2024 term ($6,320 tuition total − $5,250 federal exemption = $1,070). The additional tax withholding would also be approximately $107 per month for three consecutive months.

If your tuition benefits total $6,320 for the fall 2025 term, your taxable tuition benefit over the course of the three months would be $2,106.67 per month ($6,320/3) and the additional tax withholding would be approximately $632 per month ($2,106.67 × 30%).