Purpose:

The purpose of this bulletin is to provide agencies with instructions for processing taxable Educational Assistance Benefits for 2025.

Affected Employees:

Employees who receive Employer paid and/or Union (CSEA, PEF, MC, NYSCOPA, NYSPBA) paid qualified Educational Assistance benefits that exceed the $5,250 exclusion limit for calendar year 2025 are affected.

Per IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, the first $5,250 of Educational Assistance provided to an employee under an Educational Assistance program is excluded from taxable wages.

Amounts in excess of $5,250 must be reported and are subject to federal, state, local, Social Security, and Medicare taxes.

A qualified program may benefit only the employee.  A program that provides benefits to a spouse or dependents of employees is not a qualified program.

Benefits paid by a nonqualified program are fully taxable.

Most State of New York programs are qualified programs.  Please see IRS Publication 15-B for further information.

Note: As of July 2025, two new earnings codes have been created to allow the Office of Employee Relations (OER) to process educational assistance through PayServ. OSC has contacted affected agencies and entered Educational Assistance (EDA) for employees who received educational assistance of more than $5,250, prior to July. Taxable educational assistance paid after July 2025 will be paid in PayServ with earn code TRT. This code will increase the employees’ taxable gross and are subject to all Federal, State, and Local taxes. Please see Payroll Bulletin 2353 for more details.

OSC Actions:

OSC will create Control-D report NPAY758 - Educational Assistance Reported to OSC which will be available to agencies on 11/7/2025.   OSC has modified this report for ease of use with the new educational assistance earn codes submitted by OER.   The new report will include the following fields:  Employee Id, Employee Record, Employee Name, Pay Group, Primary Job Department ID, Annual Non Taxable Limit, Amount Reported by Vendor,  Total Non-Taxable Paid via PayServ, Total Taxable Paid via PayServ, and Taxable EDA Needed.

Agency Actions:

Agencies must review the NPAY758 report and identify employees that require a taxable Educational Assistance (EDA) payment, as defined below:

1. The Taxable EDA Needed amount is greater than $0. This is the amount that exceeds the annual limit and has not yet been taxed (Amount Reported by Vendor  + Total Non-Taxable Paid via PayServ) - Annual Non-Taxable Limit); or
2. The amount that Exceeds the annual limit when combined with any additional Educational Assistance benefits paid to the employee by the agency through the NYS Statewide Financial System (SFS) Accounts Payable voucher process (Amount Paid by Agency + Amount Reported by Vendor + Total Non-Taxable Paid via PayServ) – Annual Non -Taxable Limit.

The Taxable EDA Needed amount is considered the taxable amount and must be reported in PayServ.  To report the taxable amount through Time Entry, use the Earnings Code EDA and enter the following information into the Time Entry page:

NOTE: If an employee appears on the NPAY758 who has left the agency, the amount of educational assistance can still be entered into Time Entry using earnings dates prior to their departure date.

For Administration pay cycle agencies, transactions must be entered no later than Pay Period 19 Lag (check dated 12/31/2025) and Pay Period 20 Current (check dated 12/31/2025).
 
For Institution pay cycle agencies, transactions must be entered no later than Pay Period 18 Lag (check dated 12/24/2025) and Pay Period 19 Current (check dated 12/24/2025).

Payroll Register and Employee’s Paycheck/Advice Communication to Affected Employees:

Earnings Code EDA and the amount will appear on the employee’s paycheck or direct deposit advice statement.  OSC has prepared the attached letter explaining the tax rules governing Educational Assistance Benefits and describing how the Educational Assistance amount will be displayed on the employee’s paycheck or direct deposit advice statement. 

Agencies are strongly encouraged to:

• Provide this letter to affected employees prior to processing these transactions. This advance notification will allow employees time to prepare for the additional tax withholding.
• Include additional information with this letter that identifies the specific paycheck date on which the withholding for Educational Assistance Benefits will occur.

Tax Information:

Educational Assistance in excess of $5,250 is considered a taxable fringe benefit. As such, it is supplemental taxable income, will be added to the employee’s taxable gross wages for tax withholding purposes, and is subject to employment and income taxes.
 
Federal, State, and New York City income tax withholding will be calculated using the Aggregate method.  Yonkers’ income tax withholding will be calculated using the Flat Rate method. Yonkers Flat Rate Withholding is 1.95975% for Yonkers residents and 0.50% for Yonkers nonresidents.

Earnings codes EDA and TRT will be reported in box 14 on the W-2 with code EDA

Questions:

Questions regarding this bulletin may be directed to the Tax and Compliance mailbox.