HOUSE BILL REPORT

SJM 8026

BYSenators Rinehart, Saling and von Reichbauer

Requesting that Congress exempt tuition waivers from federal income tax.

House Committe on Higher Education

Majority Report:  Do pass.  (12)

      Signed by Representatives Jacobsen, Chair; Heavey, Vice Chair; Barnes, Basich, Fox, Jesernig, Miller, Nelson, Prince, Silver, Unsoeld and K. Wilson.

House Staff:Susan Hosch (786-7120)

AS PASSED HOUSE FEBRUARY 29, 1988

BACKGROUND:

By state law, teaching assistants at the state universities receive tuition waivers as part of their compensation.  Until 1987, these waivers were not subject to federal income taxes.

Under the 1986 Tax Reform Act, educational assistance granted to employees is no longer tax exempt if the assistance represents payment for teaching, research, or other services, and the services are required as a condition of receiving the assistance.  Teaching assistants in Washington are subject to this provision of the new tax code.

One loophole remained.  Educational assistance granted as a fringe benefit was not taxable.  Teaching assistants at the University of Washington were receiving their waivers as a fringe benefit, according to a resolution passed by the university's Board of Regents in December, 1985.  The section of the tax code that contained the loophole expired on December 31, 1987.  Therefore, University of Washington teaching assistants will have to pay taxes on their waivers beginning with the upcoming winter quarter.

During the last fiscal crisis, Washington State University began using work study moneys to fund some teaching assistants.  Due to that decision, and the state statute linking a teaching assistant's waiver to the service the assistant performs, attorneys for WSU counseled that tuition waivers could not be considered a fringe benefit. Washington State University began withholding taxes on each teaching assistant's tuition waiver in September, 1987.  University officials report that about $40 per assistant is withheld each month to pay these required taxes.

The new withholding requirements have caused a great deal of dissension on WSU's campus.  Graduate student dismay there was exacerbated because students at the UW did not have taxes withheld on their waivers.  Students and graduate school faculty at the state's universities are asking the legislature to help them convince the US Congress to reenact statutes exempting tuition waivers from federal income taxes.

SUMMARY:

The Legislature petitions the Congress of the United States to reconsider the issue of taxing tuition waivers and exclude these waivers from income subject to federal income tax.

Fiscal Note:      Not Requested.

House Committee ‑ Testified For:    Meghan Lundeen, Washington State University; Heather Worthley and John Kenedy, University of Washington.

House Committee - Testified Against:      None Presented.

House Committee - Testimony For:    Teaching assistants are paid much less than faculty because they are graduate students, but their tuition waivers are taxed because they are considered to be university employees.  Their waivers should be treated the same way waivers for senior citizens, foreign students, other students and unemployed persons are treated.  None of those waivers are taxed.  Teaching assistants are crucial to the universities' ability to educate large numbers of undergraduate students.

House Committee - Testimony Against:      None Presented.