Tax Rules Assessment
The following provides a comprehensive guide addressing the most common tax issues affecting higher education, specifically tailored for campus customers such as faculty, staff, and students. It helps users determine the appropriate course of action when encountering tax-related matters, clarifying whether certain activities are prohibited, tax-reportable, or otherwise impactful to employees or students.
This guide offers basic information on various tax issues, including a tax summary, the potential tax impact or benefit, relevant federal or state tax policies, and the corresponding university guidelines. However, at the time of publication, university policies had not yet been fully updated and were still being managed. The final update is expected by the end of 2025.
The guide simplifies intricate tax regulations to help users comprehend their application in specific scenarios.
|
Tax Issue |
Tax Summary |
Tax Impact / Benefit |
Federal or State Policy |
|---|---|---|---|
| Court Ordered Withholdings | Court-ordered third party payments include: Child Support, SS Wage Garnishment, Court-Ordered Garnishments, Student Loan Repayment, Federal and State Tax Levies, Chapter 13 Bankruptcy | All deductions are withheld from wages as "post-tax" deductions, there is no impact on tax withholding calculations | CAPP Topic 50405 |
| DeMinimis Benefit Exclusion | A fringe benefit qualifies for tax exclusion as a de minimis fringe benefit if its value is too small to justify the administrative burden of accounting for the benefit. Examples include coffee, doughnuts, or soft drinks furnished to employees; occasional theater or sporting event tickets; if the institution frequently provides these minor benefits, then the aggregate value of those benefits may be substantial. When this occurs, a benefit of a relatively small value will fail to qualify for the de minimis exclusion because the aggregate value is significant enough to warrant accounting for the benefit.Cash payments or cash equivalents like gift cards do not qualify for the DeMinimis gross income rule. At W&M, the DeMinimis Benefit maximum amount is $100.00. | Any non-cash benefit that is $100 or less may be excluded from employee's gross income; excess of $100 is Taxable and Reportable on W-2 for employees. | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Employee - Gift Cards | Cash payments or cash equivalents to include gift cards do not qualify for the DeMinimis gross income rule. W&M gift policy prohibits the use of gift cards as gifts. Cash or equivalents to employees must be paid through the payroll process. | Taxable at time of payment, Reportable on W-2 | IRS Publication 525 Taxable and Nontaxable Income |
| Employee - Monetary Awards | University employees receive awards for their service to the institution or for academic or civic achievements. Generally, awards are included as part of an employees gross income in an amount equal to any cash received or, if the award consists of property or services, the fair market value of the property or services received. | Taxable at time of payment, Reportable on W-2 | IRS Publication 525 Taxable and Nontaxable Income |
| Employee Achievement Awards | An employee achievement award is defined as a tangible item of personal property granted by an employer to an employee in recognition of their length of service. The university's policy sets the upper limit for the value of such awards that an employee can receive. Departments that offer achievement awards to employees are required to cover the expense using local funds. Any gift surpassing the predetermined maximum value will render the entire amount of the gift subject to taxation and mandatory reporting. | Taxable at time of payment, Reportable on W-2 | IRS Publication 525 Taxable and Nontaxable Income |
| Employee Educational Assistance Programs | Under the IRS policy, an employee may receive up to $5,250 of employer-provided educational assistance annually (calendar year), assuming all policy conditions are met. Any amount received over the maximum for employer-provided educational assistance is included in an employees gross income. Currently, policy only covers W&M delivered courses. | The benefit becomes taxable as soon as it is paid out and must be reported on the W-2 form. Employees can receive a maximum of $5,250 tax-free; any benefit exceeding this limit is liable to income tax and will be documented on the W-2. | 26 U.S. Code 127 - Educational assistance programs |
| Employee Gross Income | Gross income is an individuals total earnings before taxes or other deductions. This includes income from all sources, not just employment, and is not limited to income received in cash; it also includes property or services received. | Taxable at time of payment, Reportable on W-2 | IRS Publication 525 Taxable and Nontaxable Income |
| Employee Legal Settlements | The taxability of employee legal settlements is based on the type of payment made. The general rule is that settlement amounts paid to a claimant are taxable to the claimant. The only non-taxable payments are for physical injury. | Taxable at time of payment, Reportable on W-2 | US Code 104, Treasury Reg 1.6041 |
| Employee Overpayments | Employees notified of an overpayment have very few options for repayment. They must repay the overpayment within the same number of pay periods for which they receive the overpayment or they can write a personal check, but in no case should the repayment occur over a longer period of time than the overpayment occurred. | Corrections may result on a W-2C and an adjusted 941X | US Code 31.6413. 31.6051 |
| Employee Scholarships and Fellowships | W&M employees may not receive any additional institutional financial assistance toward their educational goals beyond the benefit received through the Employee Educational Assistance Policy. | Employees may not receive institutional financial educational assistance beyond the maximum under employee educational assistance policy. | IRC 117 Qualified scholarships |
| Employee Supplemental Wages | Supplemental wages encompass various types of payments made to employees beyond their regular wages, such as bonuses, commissions, overtime pay, accumulated leave payouts, severance pay, awards, prizes, back pay, retroactive pay raises, and moving expense reimbursements; these payments are subject to taxation at the supplemental tax rate. | Taxable at time of payment, Reportable on W-2 | US Code 31.3402(g)-1 |
| Employees - Non-Resident alien (NRA) taxes, withholding and Reporting | Employees that are nonresident aliens must pay taxes on income earned in the US. Nonresident aliens may get taxed differently depending on their type of income. NRAs must certify their NRA status when they first receive payment from W&M and annually after that. | Taxable at time of payment, Reportable on 1042-S | None |
| Employees - Out of State Hire | Employees whose primary work is completed outside of Virginia. When it comes to tax withholding, payroll primarily follows the state's rules where the work is performed. These employees may owe income tax to their state of residence and where the work is performed. The rules are complex and handle case-by-case basis. Working outside Virginia create Nexus which results on tax presence in the State that can generate additional risks and liabilities for W&M. | Taxable at time of payment, Reportable on W-2 | IRS Publication 525, Mobile Workforce State Income Tax Simplification, Each State Rules |
| Flexible Reimbursement | The Office of Health Benefits in the Department of Human Resource Management (DHRM) administers the Commonwealth of Virginia Flexible Benefits Program. The program allows employees to contribute to a Medical Reimbursement Account (MRA) and/or a Dependent Care Reimbursement Account (DCRA) through payroll deduction on a pre-tax basis. The plan qualifies as a cafeteria plan authorized by Section 125 of the Internal Revenue Code. The Internal Revenue Service establishes the calendar year limits and minimum and maximum contribution amounts. | Contributions for plans are designated as pre-tax and are deducted from gross pay prior to computation of FICA, Federal and State income taxes. | CAPP Topic 50435 |
| Fringe Benefit Professional Dues and Licenses | University employees frequently incur dues for memberships in professional societies or associations. As a general rule, dues paid to business organizations, such as professional associations, are considered ordinary and necessary expenses | Ordinary and Necessary Expense | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Fringe Benefits - Clothing to Employees (to include shoes) | Clothing is exempt as a de minimis fringe benefit if its value is small enough to make accounting for it unreasonable or impractical and if similar fringes aren't provided frequently. This exception applies, for example, to t-shirts or hats given to employees at an event. Required clothing, such as a uniform, might be excluded from income as long as the uniform may not be wearable outside the work environment. All other clothing valued greater than $100 must be reported as income. | Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Fringe Benefits - Regalia | This falls under the Free Clothing Rule. Regalia is considered a personal purchase and it is not reimbursable by the university. However, the university may allow funds to be used for the rental expense in lieu of purchase. | Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Fringe Benefits Employees Travel Advances | Travel advances in excess of substantiated expenses may not be held in anticipation of future travel and must be cleared. Failure to clear a travel advance within 60 days of the completion of the trip could result in the advance being reported to the IRS. The travel advance amount then becomes taxable income on the individuals W-2. | Taxable and Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Fringe Benefits Moving and Relocation | Moving and relocation stipend may be paid for a newly hired faculty or staff employee to move from their former residence to the new residence.For an employee to be eligible to receive a moving and relocation stipend, the following eligibility criteria must apply: (1) The distance between the employees new work location and the former residence must be 50 miles greater than the distance between the employees old work location and the former residence (2) The employee must be hired into a full-time salaried position for at least one year (twelve consecutive months), and (3) The relocation must be at the university's request, not for the convenience of the employee. | Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Fringe Benefits Qualified Transportation Fringe Benefits (QTF) | W&M does not allow departments to pay for parking on behalf of the employees. | Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Fringe Benefits: Cell Phones, iPad, Laptops | Purchases of cell phones, iPad, and laptops for personal ownership are prohibited. All devices are owned by W&M. If the university cannot purchases a device for employee ownership. | Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E, IRC Section 274 |
| Fringe Benefits: Complimentary and Discounted Tickets to Athletic, Entertainment and Cultural Events | If the university occasionally provides tickets to its employees, the value of the tickets or the discount may be excluded from the employees gross income as a de minimis fringe benefit. However, the de minimis fringe benefit exclusion does not apply if an institution provides complimentary season tickets. | Exempt, if DeMinimis otherwise Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Fringe Benefits: Personal Use of University Facilities | The exemption from incurring extra expenses or lost revenue for the university will be triggered if the employee's utilization of the facility does not generate any additional costs or revenue losses. As for the specific exemption pertaining to an employee's utilization of an "employer-supplied athletic facility," the facility's value is excluded from the employee's gross income if: (1) the facility is situated on the employer's premises; (2) the employer manages the facility; and (3) the facility is primarily utilized by employees. | Exclude from Income if no additional cost or forgone revenue to the university | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Fringe Benefits: Retiree Health Insurance Sponsored Payments | Employer-paid premiums for health insurance are exempt from federal income and payroll taxes. Additionally, the portion of premiums employees pay is typically excluded from taxable income. | Exclude from Taxation. | Rev. Rule 62-199 |
| Fringe Benefits: Spousal Travel on Business Trips | W&M Employees are not eligible for spousal travel reimbursement. | Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Health Insurance | Full-time and part-time salaried employees choose from among several different healthcare plans. State agencies and employees each pay a portion of health insurance coverage costs. Agencies administer healthcare benefits for their employees and collect and pay premiums to cover the cost of healthcare through Cardinal HCM payroll deductions. | Contributions for plans designated as pre-tax are deducted from gross pay prior to computation of FICA, Federal and State income taxes. Contributions for plans designated as post-tax are withheld from wages as "post-tax" deductions, there is no impact on tax withholding calculations. | CAPP Topic 50430 |
| Honoraria | An honorarium typically involves a payment that is made to a person in exchange for services for which no specific fees were required or requested. Students at W&M may not receive honoraria payments. | Taxable, Reportable on W-2 for employees, and Reportable on 1099-NEC for Vendors | IRS Publication 525 Taxable and Nontaxable Income |
| Independent Contractor | An independent contractor is an individual or entity that works or offers services for another party as a self-employed entity, separate from being an employee. The independent contractor has full control over how the work or service is carried out and is guided by the terms outlined in a mutually agreed-upon contract for a particular task. It's important to note that individuals who are employed by or currently enrolled as students at W&M cannot assume the role of independent contractors in any capacity. | Reportable, US Citizen receive a 1099-MISC/NEC and Non-Immigrants receive a 1042-S. | IRC Section 762, Code of Virginia, 2.2-3106, |
| Misc. Employee Deductions | The Commonwealth of Virginia offers employees a wide range of programs and services that can be paid by the employee through payroll deduction. Some of these programs are State sponsored while others are administered through third party vendors. | All deductions are withheld from wages as "post-tax" deductions, there is no impact on tax withholding calculations | CAPP Topic 50465 |
| Optional Life Insurance | Employees covered by group life may purchase additional life insurance coverage for themselves, their spouse or children through the Optional Life Insurance Plan administered by VRS. Spouses are eligible for up to 50 percent of the maximum amount of members optional group life insurance coverage. Optional coverage for minor children who are at least 15 days of age may be purchased in increments of $10,000, $20,000 or $30,000, depending on the level of coverage selected. | All deductions are withheld from wages as "post-tax" deductions, there is no impact on tax withholding calculations | CAPP Topic 50425 |
| Overtime Meals | An employee may claim an overtime meal when he or she is required to work before or after a regularly scheduled workday and cannot be expected to return home for a meal. The value of that meal is taxable and reportable. | Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Parking and Transportation | Internal Revenue Code Section 132(f)(1)(c) allows fees for on campus parking to be collected through payroll deduction on a pre-tax basis. Salary reduction agreement forms must be completed in advance of participation in the pre-tax program. | Fees designated as pre-tax and are deducted from gross pay prior to computation of FICA, Federal and State income taxes. | CAPP Topic 50465 |
| Reporting Receipts of cash more than 10,000 | All cash payments totaling over $10,000 received in a single transaction or a series of related transactions will require the completion of the IRS Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, by the 15th day after the date the cash was received. | Information Reporting, reportable per instance | 26 U.S. Code Sec. 6050I |
| Retirement Cash Match | The Code of Virginia section 51.1-609 and the Appropriation Act permit an employer-paid supplemental cash match for eligible employees who participate in the Commonwealth of Virginia 457 Deferred Compensation Plan (DCP) or a 403(b), tax- sheltered annuity (TSA). The supplemental cash match for DCP participants is administered under the Virginia Cash Match Plan 401A by VRS. | All employer contributions are excluded from taxation at the time the contribution is made. Disbursements upon retirement are reported on Form 1099-R. | CAPP Topic 50415 |
| Retirement VRS and ORP | The Virginia Retirement System (VRS) administers four different types of defined benefit retirement plans. A defined benefit pension plan is a plan in which an employer promises a specified monthly benefit on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service, and age, rather than depending directly on individual investment returns. Based on an employees current position, they may be eligible to elect an Optional Retirement Plan (ORP). ORPs are defined contribution retirement plans offered as an alternative to VRS retirement. A defined contribution plan is a type of retirement plan where the employer, employee, or both, make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. Only employer contributions to the account are guaranteed, not the future benefits. In defined contribution plans, future benefits fluctuate based on investment earnings. | The amount deferred is deducted from gross pay prior to computation of Federal and State income taxes. | CAPP Topic 50425 |
| Salary Reductions Plan | Internal Revenue Code (IRC) allows employees to defer tax on wages that are invested in certain retirement plans under salary reduction agreements. Two plans are available to Commonwealth employees, 457(b) (deferred compensation) and 403(b) (tax-sheltered annuity; limited eligibility) plans. Additionally, post-tax contributions, known as Roth contributions, are available for both Deferred Compensation and Annuities. | The amount deferred is deducted from gross pay prior to computation of Federal and State income taxes. A post-tax contribution to DCP known as a Roth 457 is also available. | CAPP Topic 50415 |
| Sales and Use Tax Exemption - Out of State | The university qualifies for some tax exemption for goods and services received in other states. We are not automatically Exempt. | Exempt on purchases from Other States, visit Tax Website for specific state information. | Code of Virginia58.1-609.1. Government and Commodities Exemptions |
| Sales and Use Tax Exemption - Virginia | The university qualifies for tax exemption for goods and services received in Virginia. Purchases made on behalf of W&M must be made using a Commonwealth of Virginia Sales and Use Tax Certificate of Exemption (Form ST-12), regardless of the method of payment or institutional funds used. | Exempt on purchases from Virginia Vendors | Code of Virginia, Chapter 6, |
| Special Payments | Payments to employees for compensation and payments not normally associated with regular salary or wages are commonly referred to as Special Payments and may include temporary additional pay, military pay, healthcare premium rewards, and other miscellaneous income. | Special payments are taxable, and as such are subject to the Supplemental tax rates as outlined by the IRS and the Commonwealth of VA. | CAPP Topic 50515 |
| Travel, Meal and Entertainment Expenses | For the university to deduct expenses for travel, meals, and entertainment as business expenses, the Internal Revenue Code requires that the employee maintain extensive substantiation. In general, a taxpayer must substantiate with records the following elements for each expenditure: (1) the amount of the expenditure; (2) the date, time, and place of the travel, meals, or entertainment; (3) the business purpose served by the expenditure; and (4) the business relationship to the taxpayer of each person entertained. If these requirements are not satisfied, the IRS can disallow the claimed deduction in full. In addition to the substantiation requirements, entertainment and travel expenses can be deducted only under limited circumstances, and lavish or extravagant entertainment expenses cannot be deducted. Expense Reports must be submitted within 60 days to remain non taxable. | Ordinary and Necessary Expense, unless paid after 180 days - then Taxable at time of payment, Reportable on W-2 | IRS Section 132 Fringe Benefit, Publication 15, Circular E |
| Unclaimed Property | Unclaimed property improperly or accounts that have no activity or contact with the owner for a specific period of time, called the dormancy period. By law, unclaimed property must be returned to the state after the dormancy period. The holder of the property must try to locate the owner before escheatment. Annually, all outstanding unclaimed property must be remitted to the Commonwealth. | Information Reporting & Asset Transfer Annual | Code of Virginia 25. Virginia Disposition of Unclaimed Property Act |
| Unpaid Leave of Absences and Overpayments | Salaried employees who have unpaid leaves of absence may receive zero payments or partial payments for hours worked. Partial payments, sometimes known as docked pay, result when an employee does not have sufficient leave to cover an absence from work. Once the absence meets a specified period, as determined by the Department of Human Resource Management (DHRM), the employee is considered in a Leave Without Pay Status (LWOP). The LWOP may be voluntary or involuntary, and can affect both pay and benefits the employee is entitled to receive. | The semi-monthly salary of an employee on LWOP must be reduced by the dollar value of the time missed. Employees are not taxed on LWOP reductions to wages. | CAPP Topic 50510 |
| Unrelated Business Income Tax (UBIT) | A nonprofit, tax-exempt organization regularly carries on a trade or business that is not substantially related to its exempt purpose, except that it provides funds to carry out that purpose; the organization is subject to tax on its income from that unrelated trade or business. | Report and Tax Annually on Form 990-T | Publication 598, Tax on Unrelated Business Income of Exempt Organizations |
| Virginia Sickness and Disability Program | The Virginia Sickness and Disability Program (VSDP) is administered by VRS in partnership with a VSDP third party administrator (VSDP TPA). VSDP provides state employees with supplemental income while out of work due to a short-term or long-term disability. | VSDP payments are taxed as regular wages. | CAPP Topic 50525 |
| Void Payments | The void payment process reverses gross-to-net payroll amounts (i.e., gross payroll, taxes, and deductions) from the employee record for payments created in error. | This process corrects the employee record for W-2 reporting and adjusts the next federal and state tax deposits. | CAPP Topic 50530 |
| W-9 / W-8 Collection | IRS Forms W-9 and W-8 are the forms sent to a vendor with the goal to Request for Taxpayer Identification Number and Certification, is used by businesses to get tax information from external parties. The information provided on these forms informs the company of what information to include in the corresponding tax reporting forms. | Informational Return. Processed and retained in Accounts Payable. | IRS W9 and W8 Instructions |
| Workers Comp | Employees injured during the course of employment are eligible for benefits under Virginia's Workers' Compensation Act if the injury is deemed compensable. WCP is responsible for administering the state workers compensation program under Title 65.2 of the Code of Virginia. WCP initially identifies employees eligible to receive workers compensation benefits and handles all related payments to physicians, agencies and employees (if applicable). | Retroactive payroll adjustments involve reclassifying taxable regular payments made to an employee within the eligibility determination period into the correct taxable and nontaxable workers' compensation special pay codes. Since these adjustments could lead to the return of previously withheld payroll taxes, it's crucial to complete all adjustments within the same calendar year as the eligibility determination period. | CAPP Topic 50520 |
