Tuition Assistance is Taxable

[Snaggletooth]

So says the employer of one of my clients.

The employer itself is a university. Client takes graduate classes in pursuit of MBA, and university adds
a varying amount, usually $500 to her bi-weekly taxable pay. Over the course of the year this is over $12,000 and
she receives a 1098-T with equal amounts of $12,850 showing in the tuition box and assistance box.

I maintain her first $5250 should be tax free, and can give cites (so can all of you who are reading this).

Her employer is a private college with a well-respected accounting and business department. Their Accounting
professors/instructors also have private CPA/tax practices as well as teaching. Surely the business department is
getting sound advice from their vast resources. Or are they?

The college is also having to pay out the employers' share of FICA/Med, SUTA, FUTA on dozens of employees.
If I am correct about the first $5250 being tax exempt, would they not jump at the chance to save a ton of money?

What am I missing??

[BP.]

Just some ideas . . .
Are you able to verify for yourself that the tuition assistance was included as taxable income- maybe by looking at a paystub?
Could it be that the amount in income is excess above the $5,250 they may have provided?
Maybe the rules about "highly compensated employees" have come into the picture?

If taxable, at least there's the possibility of $2,000 Lifetime Learning Credit.

[Snaggletooth]

British Petroleum

BP thanks for responding. We can forget "highly compensated employee" with this massive $37,000 W-2. The $37K includes $12K of "taxable" tuition. I asked her to produce a check stub and I looked at two of them for 2013. The tuition is shown as a "taxable fringe benefit", subject to FIT taxation, social security, and medicare.

Good ideas, but alas, poor Yorick...

sounds like you may just as puzzled as I am. The university is my undergraduate Alma Mater, and they're always asking me for money, so I'll bring this to the attention of their business office.

[Burke]

If I am correct about the first $5250 being tax exempt, would they not jump at the chance to save a ton of money?
What am I missing??

That they may not have a written educational assistance plan in effect? If not, how do they decide who to pay and how much? If it is completely discretionary, then it would be fully taxable. I can't imagine them not having one if they are doing this.