Tax on RAship

[SiraRaven]

I'm a new graduate student with an RAship, and I was wondering what tax is going to be like on my stipend. I just signed my contract today so I actually got to see how much I'll be making - the paper said $24.50/hour at 20 hours/week, which works out to $1960/month. I'm assuming, though, that that's before tax. I realize this probably varies by state (I'm going to grad school in Massachusetts), but does anyone have any idea what sort of tax I should expect on that? I'm trying to figure out how much money I'll actually have to work with on a month-by-month basis.

[long_time_lurker]

This is a very good website for determining what your take home pay will be. It comes very close to what I get from my employer.

http://www.yourmoneypage.com/withhold/ma.php

Just be careful if you have another job. Your cumulative withholding will be too low, and you will end up owing money on April 15.

[Eigen]

It really depends on everything else in your life- what you can take as deductions.

The IRS has tax calculators, and I find Turbotax's calculators are also quite good.

Also note that aside from owing money on April 15th that if you underestimate your withholdings too much and owe more than $1000 when you file, you'll also need to pay interest/penalties at that time.

I'd estimate you'll end up paying about $200-$400 per month in federal taxes + SS + Medi.... Then you'll have state taxes on top of that, which can work out to be somewhere from 1/2+ of your federal taxes, but I have no idea where Mass. falls in that range.

[robot_hamster]

It also depends on where you are. Graduate students are exempt from SS and Medicare at my school.

[Eigen]

RH:

Just because your school doesn't take it out of your paycheck doesn't necessarily mean you're legally exempt from paying it.

There should be no differences between US schools as far as what you owe in taxes- it's all considered income (even tuition waivers) and as such is subject to the same federal tax code no matter where you are.

[robot_hamster]

That's not what they told me at school. They said that if you met certain requirements, then you were exempt.

Edit:

Here we go, they actually say it on the website.

To be exempt from FICA (Social Security) and Medicare withholding, GAs must be enrolled for at least 4 or more credit hours in the academic semester or 3 or more credits for all summer sessions combined, which is considered halftime status.

Edited August 19, 2011 by robot_hamster

[Eigen]

Interesting. That doesn't go with any of the IRS publications I've read.

Student status should have no impact on FICA and Medicaire, assuming the assistantship is paid for a TA/RA. TAs and RAs are considered "renumeration for services", or a usual job and the normal withholdings apply. Fellowships are considered a "consulting or self-employed" position, and so there's a bit more latitude in how you interpret FICA/medicare obligations.

[robot_hamster]

It does sound weird, doesn't it? I'm not sure why it's like that. They don't pay very much for stipends there though either. Perhaps they have a different arrangement with the IRS? I didn't have an assistantship for my first semester, so I didn't have any of this stuff on my taxes last year. I'm not too worried though. Even if they end up thinking I owe taxes anyway, my husband is still in undergrad so there will be his education credits on our taxes anyway. So the worst thing that could happen is that it would be a wash and we wouldn't get our usual refund.

[Eigen]

Yeah.

It could be that if your assistantships are small enough, the school knows they're under the taxable level for most students, and don't worry about it ::shrugs::

From my understanding though, it's not possible for them to have a different arrangement with the IRS.

[robot_hamster]

It does have something to do with being enrolled in classes though. There was a notice that went out at the beginning for the summer. It said that if you were being paid over the summer months, then you needed to be enrolled in classes during the summer sessions. Otherwise, the taxes would be deducted from the paychecks for those months. I didn't have anything for the summer, so I didn't need to worry about that.

Or there is another scenario, I suppose. Perhaps graduate students have been paying the taxes unnecessarily. That wouldn't be too good. I will have to investigate this more. Perhaps it has something to do with the way the income is reported to the IRS from the school in question.

[robot_hamster]

What form do you receive? Mine is reported on a 1099-MISC.

[Eigen]

There's a 1099, a 1098 and a W2- I receive all 3, for slightly different funding sources. Tuition waiver is one, summer assistantship is another, etc. My income is reported on a W2, though, since it's income. Fellowships/scholarships aren't reported as such, you have to report them as "other" income- the institution doesn't always report it. That doesn't mean it isn't taxable, however. Take the NSF fellowship- it doesn't get reported on your W2, your 1098 or 1099 forms. It's up to you to write it in on your income taxes as other income, with the notation "SCH" next to it (taken from the IRS publication on fellowships and the NSF). The same is true for many other state/federal fellowships, and even institutional fellowships. It goes back to what I was mentioning earlier about either having pay received for services rendered (TA, RA) or lump stipends (Scholarship, Fellowship) with no services attached.

I will note that there's a difference in the *amount* of FICA taken out in/out of courses, but it shouldn't disappear completely from your withholdings.

If you're interested, the IRS has very detailed publications on how to treat fellowships, assistantships, scholarships, etc. I've read them all several times.

Grad school doesn't really offer any tax breaks in and of itself, other than the fact that you can deduct tuition and fees. All of the actual tax breaks are limited to your first 4 years of undergraduate education only.

Edited August 19, 2011 by Eigen

[Eigen]

Ok, so I found what the deal is:

Usually, FICA is payed part by the employee and part by the employer (who matches the employee contribution). It seems like some schools opt to pay "both parts" for some portion of their students.

There's also an exemption on the maximum hours per week you can work (as a student worker) and not have to pay FICA, but it's like 20 hours or something quite small.

[robot_hamster]

We're not allowed to work over 20 hours a week. I'm thinking that might be what it is! It's not an exemption coming from the IRS, but an exemption coming from the school because the school is actually paying for it. Nice investigative work!

[long_time_lurker]

It's an IRS rule. It doesn't depend on what school you attend. Students are eligible for a "Student FICA Exception" provided they meet certain IRS criteria. Most students should not have FICA taken out. Note I am talking about the 5.85% everyone gets taken out of their checks for Social Security & Medicare, not your regular Fed/State/Local tax. However there are distinctions between work and non-work (as Eigen mentioned), you must be registered for enough credits, and you can't be eligible for a retirement plan - this would've been a problem in one of the schools I got into, as their TA's are unionized and receive State employee benefits including a 403( b ). If you're really interested you can search and find the relevant documents on IRS.gov.

Also, although this can be a nice coup - at $25000 you save $1462.50 over the course of a year - being called a "full-time student" can have negative consequences. For instance, the Retirement Contribution Savings Credit for me will go out the window because a "full-time student" is ineligible to take the credit even if he/she has another job at which the contribution is made.

Edited September 3, 2011 by long_time_lurker