University Times

Effective Jan. 1, most University of Pittsburgh Medical Center (UPMC) employees must pay federal taxes on tuition assistance.

And the taxes aren't cheap. For example, the liability for $522 of tuition assistance (the cost of a three-credit undergraduate course in the College of Arts and Sciences) is $186.09, based on a federal tax of 28 percent and a Social Security tax of 7.65 percent.

For UPMC employees, tuition assistance became subject to federal taxes in 1995 because Congress failed to extend an exemption on tuition taxation. The exemption was in effect last year.

For University employees, tuition assistance remains tax-free because Pitt is eligible under IRS regulations to provide its aid in the form of a scholarship.

But UPMC can't legally do that, said Susan Montgomery, director of training and development in the medical center's Human Resources office.

Also remaining exempt from taxes on tuition assistance are those employees at Western Psychiatric Institute and Clinic (WPIC) who chose to retain Pitt benefits when WPIC became part of the medical center in 1991.

Montgomery said UPMC is lobbying to get Congress to pass legislation reversing the tax liability for tuition assistance and to make the legislation retroactive to Jan. 1. If that happens, UPMC will give refunds to staff who have had taxes withheld from their paychecks, Montgomery said.

The Jan. 19 issue of Extra, the UPMC employee newsletter, spells out how tuition taxes will be withheld: "If you receive a tuition advance, your take-home pay will be less for those paychecks during which deductions occur. If you receive tuition reimbursement, your reimbursement will be reduced by the amount of the tax deductions. These deductions are in addition to the federal, FICA (Social Security), state, and local taxes that are withheld from your regular earnings.

"Federal taxes are being withheld for staff members who receive tuition reimbursement in their paychecks beginning Jan. 1, 1995. For staff members receiving tuition advances, the taxes are withheld from their paychecks over four pay periods after the UPMC receives the grade reports for the semester for which an advance was given. For the fall 1994 term, these deductions will begin with the second pay in February."

— Bruce Steele