KSU IRC 127 Employee Tuition Benefit Plan



Establishment and Purpose of Plan

1.01 Kent State University (university) hereby establishes this Plan for the purpose of providing tax benefits related to the furnishing of educational assistance to eligible current and retired employees in accordance with Policy 6 -09.1 Administrative policy and procedures regarding tuition benefits (tuition benefits policy).

1.02 It is the intention of Kent State University that the educational assistance provided under the Plan be eligible for exclusion from a Participant's income to the maximum extent possible under Code Section 127(a). Kent State University presently provides, and will continue to provide, to their employees a variety of other benefits, some of which may qualify for exclusion from gross income under provisions other than Code Section 127, including the qualified tuition reduction provisions of Code Section 117(d) and job-related courses deductible under Code Section 162. The educational assistance offered under this Plan is provided in addition to such other benefits, which shall not constitute a part of this Plan.



2.01 "Educational Institution" means any entity that provides instruction or training that improves or develops the capabilities of an individual, including instruction or training furnished by the university, either alone or in conjunction with other employers, or furnished by third parties including other educational institutions.

2.02 "Benefits" means the value of educational assistance provided by the Employer that is excludable from a Participant's gross income under Code Section 127. Such assistance includes (a) the payment, reimbursement, or waiver of tuition, fees, and similar payments charged by an Educational Institution, and (b) the cost of books, supplies, or equipment that is paid for or incurred by a Participant in taking an Educational Course. Benefits shall not include the payment, reimbursement, or waiver of costs related to (a) tools or supplies which may be retained by the Participant after completion of an Educational Course, or (b) meals, lodging, or transportation incidental to taking an Educational Course.

2.03 "Code" means the Internal Revenue Code of 1986, as amended.

2.04 "Educational Course" means a graduate course taken by the Participant under the university’s tuition benefit policy or other professional development programs, or a graduate course taken by the Participant at another Educational Institution. Educational Courses include graduate-level courses of a kind normally taken by an individual pursuing a program leading to a law, business, medical, or other advanced academic or professional degree. Educational Courses do not include courses that instruct the Participant in any sport, game, or hobby, unless such course is required as part of a degree program.

2.05 "Employer" means Kent State University.

2.06 "Participant" means any employee receiving graduate-level benefits under the tuition benefits policy. "Participant" also means any employee taking graduate courses at the university or at another Educational Institution as part of a professional development program.

2.07 "Plan" means the Kent State University Section 127 Educational Assistance Plan.

2.08 "Plan Administrator" means the President of Kent State University and those individuals within the Office of the President to whom the President has delegated authority for the administration of the Plan.

2.09 "Plan Year" means the 12-month period commencing July 1 and ending on June 30 of the following calendar year.



3.01 Every Participant is eligible to receive Benefits under the Plan, subject to the limitations set forth in Article IV below.

3.02 A Participant shall cease to be eligible to receive Benefits on the date that the person is no longer a Participant. If, however, such person is receiving Benefits at the time that the person becomes ineligible, he or she will remain eligible for Benefits under the Plan until the end of the quarter or semester in which eligibility terminates.

3.03 A Participant who resigns or is terminated as an employee of the Employer, or who otherwise ceases to be eligible to receive Benefits under the Plan, is not required to reimburse the Employer for the value of any Benefits provided under the Plan unless otherwise required by the provisions of the tuition benefits policy.


Limitations on Benefits

Any Participant who receives during a Plan Year a scholarship, fellowship, or other financial assistance from any public or private source, including a qualified tuition reduction as defined in Code Section 117(d), shall be entitled to receive Benefits under this Plan for the same Plan Year, but only to the extent that the value of the Benefits supplements but does not supplant the amount of such scholarship, fellowship, or other financial assistance.

4.02 In no event shall a Participant be entitled to receive any Benefits under this Plan in lieu of cash or any other taxable compensation that he or she might otherwise be entitled to receive from the Employer.

4.03 In any Plan Year during which a person is a Participant in the Plan, the Participant shall be eligible to receive Benefits under the Plan up to an amount of $5,250 (or such greater or lesser amount as may be subsequently permitted under Code Section 127).

4.04 The Plan is intended not to discriminate in favor of highly compensated employees (as defined in Code Section 414(q)) as to eligibility to participate in the Plan or Benefit distributions from the Plan, and the Plan will in all respects comply with the requirements of Code Sections 127(b)(2) and (3) and the underlying Treasury regulations. If, in the judgment of the Plan Administrator, the operation of the Plan in any calendar year would result in such discrimination, then such Plan Administrator shall select and exclude from participation in the Plan such Participants as shall be necessary to ensure that, in the judgment of the Plan Administrator, the Plan does not discriminate.

4.05 If any Benefit under this Plan becomes taxable, whether as a result of nondiscrimination tests or payment of Benefits in excess of statutory limits, any employment tax withholding owed with respect to the taxable portion of any Benefit shall be deducted from the Participant's other compensation in the same calendar year in which the Benefit is provided.


Plan Administrator

5.01 The Plan Administrator shall have authority and responsibility to take any reasonable actions necessary to control and manage the operation and administration of this Plan under rules applied on a uniform and nondiscriminatory basis to all Participants, including retaining an independent company to perform administrative services such as Plan recordkeeping or Benefit reimbursement.

5.02 The Plan Administrator shall give reasonable notice of the availability and terms of the Plan to such persons who are eligible to be Participants.



6.01 All Benefits provided under this Plan, with the exception of fees waived under the tuition benefits policy, shall be funded by the Employer in a manner that the Employer shall deem appropriate.

6.02 This Plan may be amended or terminated at any time by the Employer, provided, however, that any termination or amendment shall not affect the right of any Participant to claim an award for which he or she may have qualified prior to such termination or amendment.

6.03 The Vice President for Finance and Administration shall be responsible for preparing and filing any Federal or State information returns required to report any information concerning the Plan.

6.04 This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant. Nothing contained in this Plan shall be deemed to give any Participant the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant at any time regardless of the effect that such discharge shall have upon him or her as a Participant of this Plan.

6.05 This Plan shall be construed and enforced according to the laws of the State of Ohio, other than its laws respecting choice of law, to the extent not preempted by any federal law.

6.06 This document sets forth the entire Plan. Except as provided in this Plan, no other employee benefit plan, which is, or may hereafter be, maintained by the Employer shall constitute a part of this Plan.

Questions and Answers

The following questions and answers relate to the university's Section 127 Educational Assistance Plan, which is effective for courses that begin on or after July 1, 2002:


University Department Frequently Asked Questions

Expense Reimbursements

Q1:  When we make a payment to anyone who turns in a receipt or uses a meal per diem, the payment is not taxable right? 

A1:  Unfortunately, turning in receipts does not automatically make a payment tax-free.  The first principal in tax law is that everything received is taxable unless there is an exception.  If the payment is considered a business expense for the individual incurring the expense - which is not the same as Kent State's business purpose- then we can use the IRS accountable plan rules to except the payment from taxation.  Other exceptions to consider include de minimis non cash fringe benefits, no additional cost benefits, qualified retirement plan contributions and qualifying healthcare benefits. 

Q2:  If it isn't a business expense then what is it?

A2:  It depends upon the reason it is paid. If it is for the education of a student who does not render services to Kent State or it is for participation in a training program or symposium, then it is considered a non-service scholarship.  Non-service scholarships fulfill Kent State University's business purpose but the individuals receiving payment are not incurring the expenses in a business. 

Q3:  So you are saying I have to tell the student that they need to pay tax even though they already spent the entire amount of the payment on an expense? 

A3:  No, we do not advise students on the taxation.  However, we do need to inform the student that the payment is considered a non-service scholarship so that the student can determine the tax consquences.  Since non-service scholarships to US citizens, permanent residents and resident aliens are not reported on Form 1099, it is often helpful to provide the student a scholarship letter that includes information about the payment and amount.  If the student is a nonresident alien, in addition to providing the student a nonresident alien scholarship letter, then we may have to report and possibly withhold federal income tax on the payment and report it on Form 1042 regardless of the amount. 

Q4:  I am giving a graduate travel award to present research at a conference and it is part of his duties as a graduate assistant.  Is this a non taxable business expense reimbursement?

A4:  It depends.  How much is the award and how much did he spend for the trip? 

Q4a:  The award is $500 (all graduate students in our department are eligible or this amount) and the total incurred was $1,210.

A4a:  To be a non taxable business expense reimbursement, the primary reason for the reimbursement must be for the job duties.  Because all graduate students are eligible for the same amount whether they are graduate assistants or not, it appears as though it was more for the individuals education.  The fact that you are not reimbursing the entire cost leaves further doubt to treating it as a business expense reimbursement.

Additional Information Expense Reimbursement

Independent Contractor

Q1:  I am paying a business for services.  Do I need advance HR approval? 

A1:  It depends upon the business structure.  The HR approval is in place to document that services are not required to be reported on a Form W-2 instead of Form 1099.   For this reason, HR approval is required for any relationship that the payee reports the income on Form 1040.   Individuals, including DBA's and sole proprietorships and most single member LLC's report income on Form 1040.  Corporations, S-Corporations and partnerships are separate from the owners and report income do not report income on Form 1040 and we cannot issue a non-individual a Form W-2, therefore there is no need for HR approval on those relationships.   Questions about HR approval?