|Title||Providing Tax-Free Tuition Discounts for School Employees - QTRs|
|Preview||This article discusses providing tax-free tuition discounts for school employes, also known as Qualified Tuition Reduction (QTRs)|
Providing Tax-Free Tuition Discounts for School Employees
Under Code § 117(d), educational institutions may provide reductions in tuition or discounts for their employees. The process, known as a Qualified Tuition Reduction (QTR) plan, requires schools to follow three simple steps: (1) The board needs to divide employee job classifications into one or more groups and assign a specific discount to the group(s). (2) The decision to institute a QTR plan must be by official board action and the details of the decision regarding the group(s) and their discounts must be recorded in the meeting minutes. (3) Each employee filling a job classification within a specified group must be offered the same discount. Failure of a school board to set up a QTR plan as outlined above will likely subject its employees to a tax liability for any tuition discounts.
New IRS Ruling regarding QTR Plans
Recently, IRS Private Letter Ruling 200149030 was issued regarding the applicability of school tuition discounts for church staff. The IRS clearly indicated that church staff who do not have a function or role in their own Christian school do not qualify for a tax-free tuition discount under the IRS Code. If a discount is given to these individuals, the amount of the discount must be reported as income as noted above. Under IRS rules a QTR plan is specifically a benefit for the employees of an educational institution, not a church or religious organization. If your school has been giving church employees a QTR discount, the practice should end before a new school year begins.
The recent IRS ruling did not answer the question about giving tax-free discounts to church staff who teach Bible or other classes in the school, or who have other direct roles such as administration. This remains a gray area. Until there is a further IRS ruling or clarification, most Christian schools will probably continue to give discounts to church employees who have a significant or identifiable role in the school and to not report the amount of the discount on W-2 forms, unless they are "highly compensated employees." If the IRS announces any further changes regarding QTR plans, ACSI will immediately report the changes in this newsletter.
Sample School Board Resolution for an Employee Qualified Tuition Remission Plan
WHEREAS Internal Revenue Code Section 117(d) provides that a qualified tuition reduction provided to an employee of an educational institution is excluded from the employee's gross income for federal income tax and employment tax purposes, and
WHEREAS __________ Christian School is an educational institution as defined in the IRS Code Section 170(b)(1)(A)(ii), and
WHEREAS __________ Christian School desires to adopt a qualified tuition remission plan under the IRS Code Section 117(d) for the benefit of its employees,
NOW, THEREFORE, __________ Christian School adopts the following Qualified Tuition Remission Plan:
(1) Tuition for dependent children of employees enrolled in the school will be reduced in an amount equal to:
(a) _____ percent of all tuition for exempt administrative and teaching employees.
(b) _____ percent of all tuition for exempt and nonexempt support employees.
(2) Tuition reduction is only available for education provided by the school to children of current employees.
(3) A proportional tuition reduction is available to part-time employees based upon a percentage that is commensurate with the discount offered to other employees of their same QTR group.
The Qualified Tuition Remission Plan will be effective on (date)_____. At such time, the value of the tuition reduction will not be included in an employee's salary for either federal income tax or federal employment tax purposes.
[(1) As per information available in the feature article, a school's QTR plan may have more groups and variables than that shown in the sample resolution above. (2) QTR plans are typically adopted by school boards in the spring for the following school year so that teacher and administrator candidates will have a clear picture of what benefits are available if they accept employment at the school. Editor]
Notice: This article is designed to provide accurate and authoritative information in regard to the subject matter covered. It has been provided to member schools with the understanding that ACSI is not engaged in rendering legal, accounting, tax, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. Laws vary by jurisdiction, and the specific application of laws to particular facts requires the advice of an attorney.
Association of Christian Schools International
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