|STATE OF CONNECTICUT|
THE STATE COMPTROLLER
55 ELM STREET
HARTFORD, CONNECTICUT 06106-1775
MEMORANDUM NO. 96-50
October 18, 1996
TO THE HEADS OF ALL STATE AGENCIES
|Attention:||Chief Administrative and Fiscal Officers, Business|
Managers, and Payroll and Personnel Officers
|Subject:||Reportability of Reimbursed Employee Tuition Payments|
The purpose of this memorandum is to provide notification of a change in the Internal Revenue Code (IRC) affecting how educational assistance payments are treated by the Internal Revenue Service (IRS). This memorandum will outline how tuition reimbursements for state employees should now be processed.
Public Law 104-188 contained a provision extending the exclusion for employer-provided educational assistance. Section 127 of the Internal Revenue Code, "Educational Assistance Programs," has been reinstated retroactively to January 1, 1995. The exclusion expires with respect to courses beginning after May 31, 1997. The exclusion for graduate courses does not apply to courses beginning after June 30, 1996.
Section 127 states: "Employee benefits under an employer's nondiscriminatory educational assistance plan are not includable in the employee-recipient's gross income. The exclusion is limited to $5,250 per year. Reimbursements in excess of $5,250 per year are not excludable."
Section 127 continues: "The term 'education' includes any form of instruction that improves or develops the capabilities of an individual. The educational courses covered by the plan need not be job-related or part of a degree program. Courses in sports, games or hobbies (unless involved in the employer's business) cannot be covered. However, education that instructs employees as to how to maintain and improve health can be covered as long as it is not recreational in nature."
However, educational assistance exceeding the $5,250 limit may be excludable under IRC Section 132, "Exclusion of Certain Fringe Benefits from Gross Income". Please refer to Comptroller's Memorandum 95-36 dated May 26, 1995 for specific criteria for determining reportability.
The following procedures are to be used when processing employee tuition reimbursement payments:
Payments that meet the criteria outlined in Section III of this memorandum are non-reportable and the processing of the payment should be submitted on form CO-17XP and processed in the usual manner through Accounts Payable.
If the reimbursement does not meet the criteria outlined in Section III of this memorandum, the payment is reportable and should be paid through payroll. If the reimbursement is over the $5,250 maximum and does not meet the criteria outlined in Comptroller's Memorandum No. 95-36, dated May 26, 1995, the amount of the payment exceeding $5,250 is reportable and the excess amount should be paid through payroll.
Payment requests for reimbursement of tuition and other professional development costs from Fund 9916 must meet the same criteria as outlined in Section III of this memorandum. However, the payment should be processed by completing a form CO-17XP - Employee Voucher and submitting the form and two copies of all applicable documentation. The employee number, payroll unit level 2 code and D/OE code must appear in the remarks section of the form. Submit all documentation to the Comptroller's Business Office for approval and payment.
Calendar Year 1995
The Federal legislation reinstating the educational assistance exemption makes it necessary for employers to adjust employees' payroll records. Reportable educational assistance payments processed between January 1, 1995 and December 31, 1995 may require an adjustment for overpayment of taxes.
Returns should now be amended by employees who recognized educational benefits received in 1995 as income. Employees will be entitled not only to income tax refunds, but also to refunds of social security and Medicare taxes paid on the income they recognized on their 1995 returns.
Affected employees will receive a Form W-2C (Statement of Corrected Income and Tax Amounts) from the Comptroller's Payroll Services Division. The social security and Medicare taxes for 1995 will be refunded to all applicable employees by a separate check. Employees must seek income tax refunds by filing amended tax returns with the IRS and the Connecticut Department of Revenue Services.
The Internal Revenue Service has provided the following instructions for amending a tax return:
Upon receipt of the Form W-2C, employees must obtain a Form 1040X from the IRS if they wish to pursue a refund. Special procedures have been developed by the IRS to simplify the refund process. Include your name, social security number and the words "1995 tax year" on the Form 1040X, sign the form and attach your Form W-2C. In addition, write the phrase "IRC 127" in the top margin of the Form 1040X. Submit to the IRS as indicated.
Calendar Year 1996
All education assistance payments processed as reportable between January 1, 1996 and the issuance of this memorandum will be adjusted centrally to be non- reportable. Agency payroll offices must notify the Comptroller's Payroll Services Division of any tuition payments that would still be considered reportable under the new guidelines by November 6, 1996.
The non-reportable tuition amounts will be backed out of each employee's taxable wages. Social security and Medicare taxes for 1996 will be refunded to all applicable employees with the payroll check dated November 22, 1996.
The State Accounting Manual, Expenditure Section, regarding "Reportability of Educational Expenses and Reimbursements"will be revised with the next update.
Questions may be directed to the Office of the State Comptroller as follows:
Accounts Payable Procedures:
Accounts Payable Division, 860-702-3396.
Forms and On-Line: Payroll Services Division,
Remote Job Entry: Payroll Services Division, 860-702-3462.
Policy Evaluation and Review Division, 860-702-3440.
Back to Comptroller's Home Page
Back to Index of Comptroller's Memoranda