If you are taking classes for graduate credit using Harvard’s Tuition Assistance Program (TAP), it is very important that you read the following explanation of Harvard’s TAP Tax Policy so that you aren’t surprised by unexpected paycheck deductions when you sign up for Harvard classes. The text below also describes how you might be able to avoid owing any tax — by making a short case that your class is job-related. Please note that classes taken for undergraduate credit and or for no credit are not taxed, and this page and policy do not apply to them.
In early 2019, in order to ensure compliance with current IRS policies, the University began withholding tax on Harvard Tuition Assistance Program (TAP) benefits for classes that meet all three of the following three criteria (1) If the classes are taken for graduate credit and (2) If classes do not meet the IRS standard of job-relatedness; and (3) If the total tuition benefit used for such courses during the calendar year exceeds $5,250 (only amounts over $5,250 are taxable).
Harvard employees only pay a small TAP fee for every graduate class they take–for example, each class at the Extension School only costs $40 per class for Harvard staff members. However, the true value of each Extension School class is $2,900 (by “true value” we mean the how much someone who does not work at Harvard would pay per class). That is the number used to calculate how much tax you owe. Once the total value of your classes for a given year exceeds $5,250 (the maximum tax-free benefit allowed in a year), you will start owing taxes on the remainder of your classes for that year. The tax rate applied is 34.7%
The best way to understand this policy is through an example, so below we have provided a detailed example of how the TAP tax policy applies to someone taking three Extension School classes over the course of one calendar year.
TAP Tax Policy Example:
Sally takes three Harvard Extension School classes for graduate credit during the 2021 calendar year — two during the spring semester and one during the fall semester.
SPRING SEMESTER 2021
Sally signs up for two Extension School classes and pays $80 up front ($40 x 2).
Class 1 is valued at $2,900.
Class 2 is valued at $2,900.
The total value of Sally’s two spring classes is $5,800 ($2,900 + $2,900 = $5,800). Sally owes tax on everything above $5,250 so that means she owes $550 in taxes for her spring semester classes ($5,800 – $5,250 = $550). The tax rate applied to this amount is 34.7%, which means Sally will owe $190.85 in taxes (34.7% of $550 = $190.85) for the spring semester. Harvard will automatically withhold that amount, spreading it over six paychecks. This means $31.80 will be deducted from each of Sally’s next six spring paychecks for taxes ($190.85 divided by 6 checks = $31.80 per check).
March 12 paycheck: $31.80 is withheld from Sally’s check
March 26 paycheck: $31.80 is withheld from Sally’s check
April 9 paycheck: $31.80 is withheld from Sally’s check
April 23 paycheck: $31.80 is withheld from Sally’s check
May 7 paycheck: $31.80 is withheld from Sally’s check
May 21 paycheck: $31.80 is withheld from Sally’s check
FALL SEMESTER 2021
Sally signs up for one Extension School class and pays $40 up front.
Class 3 is valued at $2,900.
Sally has already used all of her $5250 tax-free benefit during the spring semester (above) so she will owe taxes on the entire value of her third class in the fall, which is $2,900. Since the tax rate applied is 34.7%, this means that Sally will owe $1,006 in taxes on her fall semester class (37.4% of $2,900 = $1,006). Harvard will automatically withhold that amount, spreading it over six paychecks. This means $167.66 will be deducted from each of Sally’s next six fall paychecks for taxes ($1,001 divided by 6 checks = $167.66 per check).
October 8 paycheck: $167.66 is withheld from Sally’s check
October 22 paycheck: $167.66 is withheld from Sally’s check
November 12 paycheck: $167.66 is withheld from Sally’s check
November 26 paycheck: $167.66 is withheld from Sally’s check
December 3 paycheck: $167.66 is withheld from Sally’s check
December 17 paycheck: $167.66 is withheld from Sally’s check
When Sally does her taxes for 2021, she will likely receive some of the money that was withheld for taxes back.
How to Avoid Owing Tax on Your Classes: Make a Case for Job-Relatedness
You may be able to avoid owing tax on your class up front, if you use Harvard’s Graduate Credit TAP Form to make a short informal argument that your course is job-related in the “Job-Relatedness Attestation” section of the form.
- MAKING A CASE FOR JOB-RELATEDNESS: In order for a course to be considered “job-related,” it does not need to be related to your core job duties, it just needs to be related to some aspect of your job. For example, if you are a faculty assistant and you are taking a class in web design, that class may not related to your core duties. However, it may provide useful skills to help you maintain the website that you update regularly for one of your faculty members — and that is where you could focus your job-relatedness argument on the form. Another example: if you are an executive education program coordinator and you are taking a writing course, this class is may not related to your core duties, but it may assist you in writing the monthly newsletter updates on program alumni that you sometimes contribute to the department newsletter. If you are in a degree program, you should consider how the job-relatedness standard applies to each individual course. For example, if you are doing a degree in psychology, you may not be able to make the case that every course you take for your program can help you in your current job, but you may be able to make a case that some of your courses could help you in your current job.
Filling out the form: If you are making a job-relatedness argument, you will want to check “yes” in the section of the Graduate Credit TAP Form that asks whether your course meets the IRS standard for job-relatedness. The job-relatedness argument you make on the form can be short and informal. You will be asked to enter your supervisor’s email address so that your supervisor can “sign off” electronically on your Job-Relatedness Attestation. Once you submit the form, a PDF of the form will be emailed to you from Benefit Strategies (firstname.lastname@example.org). If you have designated any courses as job related, a PDF will also be sent to your manager/supervisor with a link to the online approval form. Your supervisor’s approval must be received by the TAP form deadline listed on the form, so you may want to follow-up with them to be sure they sign by the deadline. Although the IRS has never audited Harvard TAP forms in all the years the TAP program has been in existence, if by chance your signed form was reviewed by the IRS and they determined your course is not job-related after all, you would simply need to pay the tax for your course. There would be no repercussions or penalties for your supervisor who signed the form, nor would there be any for you. Your payment of the tax would resolve the matter in full.
- UNABLE TO MAKE A CASE FOR JOB-RELATEDNESS: If your course is not job-related (or if you are not able to get your supervisor’s signature on your TAP form), you can apply for 40% reimbursement of any tax you owe on Harvard courses for this semester (spring 2021) ONLY using the Transitional TAP Fund (TTF). You can find the TTF reimbursement form on Benefit Strategies website: https://www.benstrat.com/harvard/. This the last semester that Harvard will be offering this reimbursement. You can learn more about how the Transitional TAP Fund works on the following page (click on the third blue bar). Even if your course is not job-related, you still need to fill out the TAP form, but under the section that asks whether your course meets the IRS standard for job-relatedness, you check “no.”
The HUCTW office will try to answer your questions about the new TAP tax changes as best we can, however please note that this new TAP tax withholding is a Harvard Benefits Office program (created, overseen, and enforced by the Harvard Benefits Office). So, if you would like definitive confirmation about deadlines, requirements, taxes-owed, etc, you should contact that Harvard Benefits Office (617-496-4001, email@example.com) or the company they pay to process the TAP forms, Benefit Strategies.