Employee Benefits in Independent Schools: Tuition

by: Sarah Dolbier
Verified by: CPA

May 30, 2024

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To attract proven administrators, independent schools are often required to embrace compensation packages that include a variety of benefits. Instead of purely competing for talent based on salary compensation, many schools offer key employees additional, non-salary compensation: from tuition reimbursements to meals, housing, and more. 

All of these forms of non-salary compensation are reported on the school’s Form 990, which discloses the compensation of key employees, executives, and directors. In a school setting, tuition reimbursements are often a major component of compensation packages, often totaling tens of thousands of dollars each year for key employees. 

Ensuring that these are appropriately reported is important and there are several factors that independent schools must bear in mind as they prepare their Form 990 filings. In this overview, we outline how schools should report tuition benefits remitted to key individuals and explore some of the nuances of this process that are unique to independent schools. 

This article is the second in a series exploring the reporting requirements associated with different forms of non-salary compensation in independent schools. Read the first article here: Excise Tax, 457 Plans, and Other Non-Salary Compensation In Independent Schools, and subscribe to the Smith + Howard newsletter to receive new articles as they are published. 

What Tuition Benefits Must Be Reported on Form 990?

Independent schools are required to report tuition reimbursements, grants, or assistance provided to key individuals and employees of the organization. These reporting requirements typically apply to tuition benefits provided to any individual identified on Part VII of the school’s Form 990 filing. 

If the school offers tuition benefits equally to all employees, for example a 10% discount on tuition for employees’ children or a multiple child discount offered to all parents, not just key individuals, the benefit is considered non-taxable. It should only be reported on Part VII of Form 990 for employees who otherwise met the reporting requirements for Part VII. 

However, if tuition is offered as a unique benefit to a Head of School or other key employee, the entire value of this tuition benefit is considered taxable. For example, if all employees receive a 10% tuition discount, but the Head of School receives a 30% discount, the Head of School will report the 30% discount as taxable compensation on Form W-2 and Form 990 Part VII. 

Tuition benefits may also be received by an interested person: most often an uncompensated member of the board, or a family member of a board member. 

The tuition benefits received by a family member of any board member are reported in aggregate on Schedule L of the Form 990, unlike other forms of non-salary compensation which must be detailed for each recipient.  Schools are not required to disclose the identity of the individual(s) that received the tuition benefit on Schedule L.  Instead, they should report the total amount of tuition assistance provided to Interested Persons – both uncompensated board members and family members of any board member – in the aggregate.

On the contrary, tuition benefits received by compensated employees are only disclosed on Part VII if the employee is otherwise required to be included on Part VII reporting.  Their tuition benefits are not included on Schedule L.

Common Scenarios that Trigger Tuition Benefit Reporting Requirements

There are two common scenarios where tuition reimbursements must be reported in independent schools:

  1. Tuition benefits, scholarships, or financial assistance provided to the parent of a child attending the school, when that individual also sits on the board of the school. 
  1. Tuition benefits awarded to a senior employee as part of a compensation package, e.g. a head teacher receiving free tuition for their own children. 

In the first scenario, it’s important to note that receiving tuition benefits, scholarships, or financial assistance would mean that the board member is no longer considered independent. Organizations should take care to ensure that they consider this when reporting on the independence of their board.

In the second scenario, whether the benefit is taxable or nontaxable, it is only required to be reported in Part VII of Form 990 if the individual is applicable to be listed on Part VII as an officer, key employee, or highly compensated employee of the school 

Key Watchouts: Correctly Reporting Tuition Benefits

With the support of an experienced nonprofit tax team, reporting tuition benefits on Form 990 is relatively straightforward. However, there are a few key watch outs that organizations should consider to ensure they fulfill all reporting requirements:

  • Preserving Anonymity: some independent schools forgo the anonymity available when reporting tuition benefits on Schedule L. This anonymity is only available to schools; less sophisticated Form 990 preparers may not be aware of this. In general, schools should preserve the privacy of individuals who receive tuition benefits, unless these benefits are a component of an employee’s total compensation package, in which case they must be disclosed on Part VII. 
  • Board Independence: as outlined above, organizations should note that if a board member receives financial assistance for their children’s tuition, they are no longer considered independent. 

Smith + Howard: Experienced Accounting Professionals for Independent Schools

Tuition benefits often form an important part of the compensation packages offered to the senior administrators of independent schools, but it’s important that organizations understand how to appropriately report on these additional benefits. The same is true for schools that have board members who receive tuition assistance or scholarships for their own children, since this affects the independence of the board. 

Smith + Howard has a strong track record of working with independent schools. Our team’s experience and dedication give you confidence that your organization is fulfilling these important reporting requirements. 

If you have questions on how to handle tuition benefits with your independent school, contact an advisor today and Andrew or Sarah, authors of this article, will contact you.

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If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.