COMPTROLLER'S SEAL STATE OF CONNECTICUT

STATE OF CONNECTICUT

NANCY WYMAN
COMPTROLLER

OFFICE OF THE STATE COMPTROLLER
55 ELM STREET
HARTFORD, CONNECTICUT 06106-1775

MARK OJAKIAN
DEPUTY COMPTROLLER

MEMORANDUM NO. 97-48

August 22, 1997

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
  1. PURPOSE
    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. Memorandum No. 97-38, "Reportability of Reimbursed Employee Undergraduate Tuition Payments - Expiration of Section 127 of the Internal Revenue Code," is rescinded. Memoranda Nos. 97-7 and 97-7a remain in effect.
  2. AUTHORITY
    Public Law 105-34, The Taxpayer Relief Act of 1997, contains 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 June 1, 1997 for undergraduate courses. The exclusion expires with respect to undergraduate courses beginning after May 31, 2000. The exclusion does not apply to graduate courses.
  3. EDUCATIONAL ASSISTANCE PROGRAMS - SECTION 127 IRC
    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."

  4. SECTION 132 IRC
    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.
  5. REQUESTS FOR PAYMENT
    The following procedures are to be used when processing employee tuition reimbursement payments:
    1. Non-Reportable Tuition Reimbursements
      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 the Comptroller's Accounts Payable Division.
    2. Reportable Tuition Reimbursements
      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.
    3. Fund 9916 - Tuition Reimbursements
      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.
  6. REPORTABLE PAYMENTS PREVIOUSLY PROCESSED
    Calendar Year 1997
    All education assistance payments processed as reportable between June 1, 1997 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 including graduate tuition payments that would still be considered reportable under the new guidelines by October 20, 1997.

    The non-reportable tuition amounts will be backed out of each employee's taxable wages, including retirees. Social security and Medicare taxes for 1997 will be refunded to all applicable employees with the payroll check dated November 7, 1997.

  7. GENERAL
    It is expected that the processing of tuition and travel reimbursements will be revised for the new calendar year and all employee reimbursements will be paid through the payroll system. New procedures will be distributed at the end of this calendar year.

    The State Accounting Manual, Expenditure Section, regarding "Reportability of Educational Expenses and Reimbursements" will be revised with the next update.

  8. QUESTIONS
    Questions may be directed to the Office of the State Comptroller as follows:

    Accounts Payable Procedures: Accounts Payable Division, (860) 702-3395.

    Payroll Procedures: On-Line: Payroll Services Division, (860) 702-3463;

    Remote Job Entry: Payroll Services Division, (860) 702-3462.

    Memorandum Interpretation:
    Policy Evaluation and Review Division, (860) 702-3437 or (860) 702-3443.

NANCY WYMAN
STATE COMPTROLLER

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