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School Tuition Discounts and Bartering
This article was published in the Legal Legislative Update several years ago. This article has been revised to reflect laws as of August 2013. The tuition amount used is only for informational purposes and should not be assumed as the average Christian School Tuition. Schools can plug in their own numbers to determine applicability.
ACSI's national and regional offices receive numerous inquiries on the topic of tuition discounts and tuition bartering. We would like to provide you and your board members with specific answers and examples that will help you as you make school policy. This article will be divided into three sections: tuition discounts for employees, tuition discounts for non-employees, and tuition bartering.
Discounted Tuition for Employees
Schools are permitted to establish "Qualified Tuition Reduction Plans" (QTR) for different groups within their organization. Under such a plan tuition discounts are legal if everyone within a particular employment classification is offered the same discount. For instance, teachers could make up one group and support staff another group. A school board may set up its groups to include any type of discounts for part-time staff. However, most offer part-timers a discount proportionate to the discount offered to a full-time person in the same group. It is a good idea for the board to include information on the different groups and their discounts as a part of the board minutes and written policy for your school. In most cases, highly compensated employees may receive the discount, but it becomes taxable for them. In most cases, church staff of the sponsoring church also may receive a discount on tuition, but it is also taxable to that individual. Please contact your accountant or tax attorney for information as it pertains to your fact-specific situation.
Tuition Barter Arrangements
Frequently, schools will barter or swap tuition charges for goods (books, equipment, supplies, etc.-essentially any item of value) or services (accounting, legal, secretarial, teaching, etc.-essentially any service). On the surface this arrangement is very appealing due to the simplicity of the swap. Education which generally adds no additional cost to the school is exchanged for goods or services with no accounting or taxes. However, this is not the case since the Internal Revenue Service and all states require any exchange of goods and services (excepting those of relatively minor value, say $25 or so) to be reported. This will necessitate both valuation and full accounting.
Generally, the exchange of goods or services as they related to tuition should be valued objectively "at arm's length." The value of the tuition would be used as the yardstick for determining the valuation for the wages paid. One needs to be conscious of the prevailing wage structure at his/her school and the surrounding community (especially if your school's wage structure is not representative) when determining the values for both sides of the exchange. The parameter of the hours or goods that make the exchange should then be set so that the exchange is relatively equal. It is not good practice to exchange services that would create an extremely higher or lower wage than comparable workers at your school receive. Exchanging a good or service whose value is much greater or less than the tuition being exchanged creates its own set of problems. "Good deals" may become accounting nightmares if reviewed by your state or federal authorities. You must also keep in mind that the exchange of value must meet federal and state minimum wage guidelines.
It is important to consider that many barter exchanges of tuition for services performed personally will result in the individual being classified as an employee whether you would have normally considered the person a member of your staff or not. This is because the substance of the transaction is one of an employer-employee relationship because you have control over the person's methods of work and times to report. Also, this relationship is continuous over time. However, in conditions where the individual does not personally provide the service (such as in Example 8 below), the employee relationship generally will not exist.
Regardless of whether the individual is placed in an employer-employee relationship, all transactions will be reportable! The reportable amounts are the full value of the items or services being exchanged when compared to the value of the tuition. The only difference is in how it is reported. Consider these examples:
From the above discussion bartering services for tuition can present a host of problems. It is for this reason that ACSI suggests that you take the conservative approach and classify all individuals illustrated by examples 4-7 as employees. (In example 8, the person working on school property is an employee of someone else.) When employees receive their payroll checks, they can always sign them over to pay their school obligations, and you are in the clear!
To summarize this section, the first thing is to make sure that all exchanges being made in your school are accounted for. Next, you need to fix a value to the service or good being exchanged based on the value of the tuition to ensure the equality of the transaction. Then, determine whether all individuals exchanging services are properly classified and that all goods and services are included in the applicable federal and state payroll reports. Finally, make certain that all applicable state and federal withholdings have been made and that the individuals are covered by worker's compensation.
Here are several things that your school should be concerned about if you allow individuals to barter for school tuition:
1) You need to check to see if the number of hours that are worked for the discount at least equal the minimum wage required for your state. Minimum wage laws still apply.
2) Did you count the person that is bartering as an employee for worker's compensation and pay a premium that includes that bartering person? If not, and the person is injured at your school, it is likely that the school may have to pay the medical bills out of pocket. Talk to your insurance carrier about how to count a "bartering" employee.
3) If you discount $600 or more tuition, the person must be issued an appropriate IRS form documenting the amount of money "earned." The problem with this is that school years do not coincide with calendar years, so you must keep track of the discount for one-half of one school year and one-half of a different school year and then be prepared to issue the IRS form to the person by the end of January for the previous calendar year.
4) If the person doing the bartering is on the school premises on a regular basis, such as nightly custodial work, is he/she considered an employee? If so, does this person have to meet the lifestyle requirements like other employees? Is the person invited/expected to attend staff in-service or other training events? Do you issue the person an employee handbook? I don't know the answer to these questions, but your school board/administrative team should discuss these questions.
This article was originally written by Burt Carney. Research materials made for the preparation of this article were provided by Dale Kennedy, member school administrator and CPA; and John L. Cooley, attorney, and former Christian school administrator.
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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