A fringe benefit is an additional benefit that is provided by IU and supplements your salary. Certain non-cash fringe benefits are considered taxable income per the Internal Revenue Service (IRS). At IU, common examples of taxable non-cash fringes include:
- Tuition benefit for graduate-level subsidies,
- Moving expenses,
- Personal use of an IU vehicle,
- Out-of-pocket reimbursements, and
Use the Table of Contents button on the right to select a non-cash fringe benefit and learn more about it.
Note: Fringe Benefits, including tuition benefits, are processed based on the period 11/01/Prior Year to 10/31 Current Year for tax form reporting purposes. For example, if an employee's tuition benefit for the Winter term posted on 11/11/2020, those benefits would be included on the employee's 2021 W-2.
Indiana University offers a tuition benefit to eligible employees (including IU Residents), former employees with IU Retiree Status, their spouse, and tax dependent children under age 24 in the form of a subsidy towards tuition costs when attending Indiana University classes.
This benefit is established under Internal Revenue Code (IRC) Section 117 and IRC Section 127. Under Section 117, undergraduate-level tuition subsidies at IU are excluded from taxation. Beginning in 2017, IU also offers a benefit for tuition under IRC Section 127, Educational Assistance Programs. This allows for a certain amount of tuition benefit (graduate or undergraduate at IU or other qualified educational institutions) to be considered exempt from taxation based on the annual limit set by the Internal Revenue Service (IRS).
Currently, for employees and retirees the annual exemption amount for graduate-level tuition subsidies is $5,250. For spouses and dependents, all graduate-level tuition subsidies are treated as taxable income to the associated employee or retiree. Visit the IU Tuition Benefit web page to learn more about tuition benefit eligibility, plan provisions, and subsidy rates.
If an employee receives an undergraduate-level tuition subsidy at IU, the entire benefit would be considered exempt from taxation per Section 117.
To calculate your taxable amount, determine the amount of graduate-level tuition subsidies you are eligible to receive for the year, and then subtract $5,250. This provides an estimate of the amount of taxable income that will be added to your paychecks throughout the year.
For example, the maximum tuition benefit for an employee pursuing an online Graduate Kelley MBA on the Bloomington campus is $4,151.25 per term (for the 2023-24 academic year). If you enroll in classes for two terms and receive the maximum tuition benefit amount, then your taxable income would be $3,052.50: receiving a graduate-level tuition subsidy of $4,151.25 each term, less the exemption amount of $5,250 for the year.
The total tuition benefit received by the employee is $8,302.50; of which $3,052.50 would be included in the employee's pay as taxable income. In effect, the employee is receiving a benefit of $8,302.50 but would only have to pay taxes on $3,052.50 of this benefit. This taxable amount would be multiplied by the employee's tax rate. This amount is generally allocated over several paychecks (the maximum amount allocated per paycheck is typically $500 but may be more or less depending on several factors).
An email is sent to each employee by University Tax Services to notify them of the additional taxable income. For former employees with IU Retiree Status or their spouse, the value of the IU Tuition Benefit subsidy for the taxable coursework will be reported as taxable income on a W-2 tax form and will be mailed to the retiree. Tuition benefit processing takes place during the months outlined in the table below. Note: Fringe benefits including tuition benefits, are processed based on the period 11/01/Prior Year to 10/31/Current Year for tax form reporting purposes. For example, if an employee's tuition benefit for the Winter term posted to their student bursar account on 11/11/2023, those benefits would be included on the employee's 2024 W-2.
|Spring||April and May|
|Summer||July and August|
|Fall||September and October|
|Winter||February and March|
Effective January 1, 2018 with the passage of the Tax Cuts and Jobs Act, moving expenses are no longer considered exempt from taxability. This means that moving expenses incurred through 2026 are paid as supplemental pay through the payroll system and are subject to federal, state, and FICA tax withholding.
Review the Employee Relocation Guidelines, provided by IU Human Resources, to learn more about this benefit.
Personal use of a university vehicle, such as use of a Motor Pool vehicle, is defined as any non-official university business such as:
- Using the vehicle to run a personal errand from your work location.
- Using the vehicle on weekends or days off for anything other than university business.
- Commuting, such as traveling between your home and your regular place of work.
IU reports the value of the personal use of a vehicle to the IRS, the state, and the employee on Form W-2 Wage and Tax Statement. FICA tax (1.45% Medicare tax plus 6.2% OASDI tax, if applicable) is withheld on this additional compensation from the employee's regular pay during the year.
Review the Personal Use of an IU Vehicle handout for additional examples and details about this fringe benefit.
Out-of-pocket reimbursements are expenses paid by an employee with their own funds, then reimbursed by Indiana University. Examples include travel reimbursements, per diems (business meals), and emergency purchases.
Purchases of goods reimbursed using IU funds are the property of Indiana University. Services purchased using personal funds may not be reimbursed.
To be reimbursed for an out-of-pocket expense, substantiation documentation must be submitted. This documentation most commonly consists of a receipt which must contain:
- An itemized list of goods purchased,
- Date of purchase,
- Name of the vendor from which goods were purchased, and
- Proof of payment
Additionally, the expense must have been incurred for a valid university business purpose. The definition of a valid university business purpose is at the discretion of each department. Contact your supervisor or business office if you are unsure if your purchase qualifies.
Finally, the taxability of out-of-pocket reimbursements is governed by the IRS Accountable Plan. The taxability of the reimbursement is determined by the timeframe in which it is requested, described in the table below.
|Timeframe of reimbursement request||Result|
|Within 120 days of purchase||Purchase reimbursed to employee. No tax implication.|
|Between 121 and 365 days after purchase||Purchase reimbursed to employee as taxable income.|
|366 or more days after purchase||Purchase will not be reimbursed.|
Please see IU Policy FIN-ACC-620: Reimbursement Under the Accountable Plan for additional information.
Gifts and awards given to employees are taxable at the fair market value of the gift unless certain conditions are met. This includes gifts given for length of service or retirement.
To be considered non-taxable, the following conditions must be met:
- Must be tangible property (not gift cards or cash equivalents),
- Must be given to a current employee,
- Must be given as an employee achievement award. At IU, this means the employee must have worked at IU for at least five years or have a retiree status, and
- Must be awarded as part of a meaningful presentation
Gifts given to employees that do not meet the above criteria are considered taxable income to the employee and will be added to your Form W-2 for the applicable year. Review IU Policy FIN-ACC-590 Gifts to Employees or Non-Employees for further information.