Question

Page 5-7 (Section 5-4a) of the text mentions “qualified tuition reduction plans” under which an educational institution may reduce or pay the tuition for its employees, and the employees will not be taxable on the assistance.

• What criteria are used to determine whether the employer qualifies to provide nontaxable qualified tuition reductions or payments under such a plan?
• Which individuals may receive the nontaxable qualified tuition reductions or payments?
• Are there circumstances in which a tuition reduction or payment made by a qualifying employer for a qualifying individual will nevertheless be taxable to the employee? If so, describe these circumstances.

Please answer each question in complete sentences, and cite the title and number of the IRS publication or form/instruction where you found each answer, and the page number on which the answer is found. Use your own words in the answer – do not copy the IRS’ language. Spelling and grammar count. This assignment is worth 5 points.

This assignment is due Tuesday, February 26, at 6 pm.

Answer 1

solution:

• An elligible instructive foundation can reject the measure of a certified educational cost decrease it gives to a worker from the representative's wages. As indicated by the IRS, a qualified instructive organization is "an establishment that keeps up an ordinary workforce and educational programs and typically has a consistently selected group of understudies in participation at where it carries on its instructive exercises."
• The principles for deciding whether an educational cost decrease is qualified, and along these lines tax exempt, are unique if the training given is underneath the alumni level or is graduate instruction
• An educational cost decrease for undergrad training for the most part fits the bill for this prohibition on the off chance that it is for one of the accompanying sorts of people:
• A current employee
• A former employee who retired or left on disability
• A widow or widower of an individual who died while an employee
• A widow or widower of a former employee who retired or left on disability
• A dependent child or spouse of any individual listed in these categories
• A tuition reduction for graduate education qualifies for this exclusion only if it is for a graduate student who performs teaching or research activities for the educational organization.
• Qualified educational cost decreases apply to officers, proprietors, or very repaid representatives just if benefits are accessible to workers on a nondiscriminatory premise. This implies the educational cost decrease benefits must be accessible on a similar premise to every individual from a gathering of workers, which is characterized by the business. This order must not separate for proprietors, officers, or profoundly repaid workers.
• Area 414(q) of Internal Revenue Code subtleties two tests for deciding whether a representative is a Highly Compensated Employee (HCE )– a proprietorship test and a remuneration test. A representative is viewed as a HCE in the event that the individual in question fulfills both of these tests.
• Possession Test: Generally, a representative that is a 5% proprietor whenever amid the present arrangement year, otherwise called the assurance year, or the year time frame quickly going before the assurance year, otherwise called the lookback year
• Pay Test: A representative who has gotten remuneration from the business in overabundance of $80,000 amid the lookback year and, whenever chosen by the business, is in the best 20% of workers positioned by pay for the lookback year. The business may make the decision for any year and it will be pertinent for every ensuing year until it is repudiated. There is no recording or announcing prerequisite with the Service. In any case, the arrangement report must be reliable with the race, so an arrangement revision might be required to mirror the decision, contingent on the terms. For more data, if you don't mind see Sections IV, V and VII of Notice 97-45.
• A business with a non-timetable year plan can choose to have the lookback year be the schedule year that starts with or inside the year time frame promptly going before the assurance year. This decision may not be made for the possession test. The necessities for making a logbook year race are put forward in Section V of Notice 97-45.