My institution taxes my graduate benefit. Am I being double jeopardized by my benefit because my income is being inflated by the benefit? What is the income limit?

Whatever the school charges you for the education is a qualified education expense. They can call it taxes or anything they want. If you are required to pay it to the school as tuition, lab fees, or books, it's a qualified education expense. The school can call it anything they want.

Your question and situation are not clear.

I'm making a wild guess that there's an itemized bill involved here that reads something akin to "tution, $1000" and "sales tax, $120". So the total tuition the parent or student is allowed to claim is $1120 because that's what they paid to the school for the tuition in full. If the school wants to "break it down", then let them.

My wild guess is that poster is an employee of the school and gets free tuition as a benefit. But the value is being imputed as income on his/her W-2 and pay stubs, with taxes withheld.
So, he/she would be allowed the tuition credit since the tuition was paid with after tax money

Thanks Carl and Hal!  My benefit did show up as imputed income AND pushed my joint return over the educational credit benefit limit...disappointing!

There is no income limit for imputed income. So, what the institution is doing is proper.