Skip to main content

Fringe Benefit to Teachers of Christian Schools: Children's Education


A church has a school affiliated with it and part of the compensation for the teachers is free tuition for their children. Is this a taxable fringe benefit? If yes, is the school required to pay FICA tax on the value of the tuition?


According to the IRS's Taxable Fringe Benefit Guide,

"Free or reduced tuition for employees of educational institutions may be excludable to employees. The term "qualified tuition reduction" means a tax-free reduction in tuition provided by an eligible educational institution. At the undergraduate level, the education need not be at the same institution where the employee works. Whether a tuition reduction is a qualified tuition reduction, and therefore excludable from income, depends on whether it is for education below or at the graduate level. The qualified tuition reduction must not represent payment for services." (An important point that we will address below).

Further, "a qualified educational organization is one which:
  • Maintains a faculty and curriculum, and
  • Normally has a regularly enrolled student body on site."
Schools must assure that tuition benefits are provided on a non-discriminatory basis, in addition to and not as a substitute for standard compensation for their services.

According to the IRS, "generally, a qualified tuition reduction cannot discriminate in favor of highly-compensated employees (for 2012, employees with total compensation exceeding $115,000)."

Also, "a fringe benefit is a form of pay (including property, services, cash or cash equivalent) in addition to (our emphasis) stated pay for the performance of services."

Should a school provide tuition-free education as the only source of compensation for services or as a benefit on a discriminatory basis, it will be in violation of IRS rules unless it treats the fair market value as both income taxable and FICA tax wages.


Popular posts from this blog

Qualified Small Employer HRAs

On December 13, 2016, President Obama signed the 21st Century Cures Act, allowing qualified small employers to offer Health Reimbursement Arrangements (HRA) that follow certain terms.

After the Affordable Care Act was passed, the IRS originally determined that an HRA was not a qualified group health plan. The Cures Act overrules this decision. HRAs are again an option for qualifying small employers.

To be eligible, the small employer must have fewer than 50 employees and must not offer a group health plan to any of its employees.

The Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) must be subject to the following terms.
No salary reduction contributions may be made (i.e., 100% employer-funded).Employer must receive proof of employee’s minimum essential coverage.Reimbursements must be for qualifying medical expenses.Reimbursements for any year cannot exceed $4,950 (or $10,000 for family coverage), which will be adjusted annually for inflation.Employer must offer the …

Housing Allowance when Bartering for Rent Payments


If a minister rents his principal residence, but he performs services (mowing the lawn, repairing the roof, etc.) in lieu of rent, can he still qualify the rent amount for a housing allowance tax benefit?


Of course, bartering income is taxable. The Internal Revenue Code interprets that above situation as follows: tenant/minister receives taxable income for the fair market value of the services he provides, andtenant/minster pays landlord for renal of residence. The minister in this case reports taxable income for services provided in lieu of rent. It is also likely subject to self-employment tax. He may then claim as qualifying housing allowance expense equal to the amount he "pays" for rent of his personal residence. Essentially, there is no difference than if the minister and his landlord simply traded checks.

See a past MinistryCPA post regarding this topic:

Mission Trips Involving Both Charitable and Personal Time


A church group went on a two-week mission trip, and a few of the members stayed an additional two weeks for personal time. Will the members who stayed the two additional weeks be able to deduct expenses from the trip?


IRS Pub 526 covers the topic of Charitable Contributions and, more specifically, travel expenses associated with charitable trips. The publication states that travel expenses will be deductible “if there is no significant element of personal pleasure, recreation, or vacation in the travel.” The publication also states, “The deduction for travel expenses won't be denied simply because you enjoy providing services to the charitable organization. Even if you enjoy the trip, you can take a charitable contribution deduction for your travel expenses if you are on duty in a genuine and substantial sense throughout the trip. However, if you have only nominal duties, or if for significant parts of the trip you don't have any duties, you can't deduct you…