Fee Waiver Taxation

The Internal Revenue Code (IRC) provides three ways to make employer-provided training and educational assistance, such as that provided through the CSU Employee Fee Waiver & Reduction Program, excludable from taxable income:

  • Qualified Tuition Reduction under Internal Revenue Code Section 117(d);
  • Educational Assistance Programs under Internal Revenue Code Section 127; and
  • Working Condition Fringe Benefits under Internal Revenue Code Section 132(d).

By coordinating the three Internal Revenue Code Sections under the CSU Fee Waiver and
Reduction Program, the following chart reflects the tax-free or taxable benefits resulting for eligible CSU employees and their eligible spouses, domestic partners, and/or dependent children:

Eligible Participant
Course Level(s)
Tax Status
CSU Employee


Nontaxable up to $5,250 (unless job related)
Employee’s Spouse/Dependent Child
Employee’s Domestic Partner

*Taxable to the employee

Taxation on Employee Fee Waiver Benefit

The value of fees waived for the employee's use of their Fee Waiver benefit is non-taxable for undergraduate courses.

For graduate level courses the value of fees waived is nontaxable up to $5,250 (unless job-related) per tax year.

Transfer of Fee Waiver Benefit to Dependent

All graduate level coursework, including the doctoral program, taken by an employee’s spouse, domestic partner or dependent child through this program continues to be reported as taxable income to the employee. All undergraduate level coursework taken by an employee’s domestic partner through this program is taxable as well.

Imputed Tax Rates

Imputed income related to participation in the CSU Employee Fee Waiver & Reduction Program, as outlined above, is subject to specific tax rates-- federal tax is mandated at a flat 22% tax rate (previously this rate was 25%, but changed effective January 1, 2018--see IRS Notice 1036, issued on January 11, 2018) and CA State at 6.6%. Social Security and Medicare taxes are taken at their normal rates of 6.2% and 1.45%.

The imputed income is reported to the State Controller's Office once each term. The reporting is done after Census for the term, so there is no adverse tax reporting on imputed income when an employee or an employee’s dependent drops courses.


CSU Employee Fee Waiver and Reduction Program Technical Letter
HR/Benefits 2011-14 (See page 6 of 6 and Attachment D)