Tuition Reduction Program
If you are allowed to study tuition free or for a reduced rate of tuition, you may not have to pay tax on this benefit. This is called a “tuition reduction.”
A tuition reduction is qualified if you receive it from, and use it at, an eligible educational institution. You do not have to use the tuition reduction at the eligible educational institution from which you received it. The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education.
You must include in your income any tuition reduction you receive that is payment for your services.
Eligible educational institution. An eligible educational institution is one that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.
Education Below the Graduate Level
If you receive a tuition reduction for education (including primary, secondary, or high school), it is a qualified tuition reduction, and therefore tax free, only if your relationship to the educational institution providing the benefit is described below.
- You are an employee of the eligible educational institution.
- You were an employee of the eligible educational institution, but you retired or left on disability.
- You are a widow or widower of an individual who died while an employee of the eligible educational institution or who retired or left on disability.
- You are the dependent child or spouse of an individual described in (1) through (3) above.
- Non-residents of Maryland who attend a two-year or four-year public institution in Maryland and applied online using the MD CAPS system at MDCAPS for the tuition reduction for non-resident nursing students.
How To Report
Any tuition reduction that is taxable should be included as wages on your Form W-2, box 1. Report the amount from Form W-2, box 1, on line 7 (Form 1040 or Form 1040A) or line 1 (Form 1040EZ).