Help me understand the US tax and insurance system

[IRToni]

Hi everyone,

 

I'm an international student hoping to do a PhD in the US soon. I have, however, trouble understanding the US tax and insurance system. It seems like my TAship and stipend will be taxed, but how do I find out the rates?

 

Also, which insurance schemes are necessary (I'm thinking liability insurance etc.) to live in the US, and where could I purchase these?

 

Lastly, if I wanted to start saving up for retirement, how would I go about doing that? I'd like to compare US rates to those in my country, as I have no idea where I want to end up.

 

Thanks in advance,

IRToni

[CommPhD20]

There are two ways your income can be taxed in the US, more or less:

 

1. "Payroll taxes" - these are taken out of each paycheck and add up to 6% of your paychecks. One part goes to Medicare, insurance for seniors, and the other part goes to Social Security, which is fixed income for seniors.

 

You will not pay payroll taxes on your stipend under most circumstances. This is a good thing for the most part, other than that you won't be eligible to receive Social Security if you naturalize and retire here without eventually paying payroll taxes. If you work in the USA, you'll begin paying into those and you'll have nothing to worry about.

 

2. You have the standard income tax. This is something you'll file after the end of the calendar year with the federal government (the so-called "Internal Revenue Service" or IRS). Some of your benefits will be taxable. What you won't include in your taxable income is tuition waivers or other portions of your stipend used for tuition. Certain other costs can be exempted from taxes, most notably things like textbooks -- the rule here is that it must be required of all students in the course. So books, computers, etc. you might buy for general research will not be exempted. 

 

Generally speaking, anything you spend on personal expenses, which includes your housing, will be taxable income. So if you have a $15K stipend and the rest of your costs are covered, then $15K is your taxable income. In the USA, it is customary for your employer to withhold a certain portion of your paychecks for the purpose of covering your income tax commitment. This is sometimes done for graduate stipends, but not always -- it usually is not if you have a fellowship rather than teaching or research assistantship. The amount withheld will be based on the assumed amount of taxes you'll owe at the end of the year. In this case, it may be the case that when you file your taxes, you'll be getting some of that back since more was withheld than was needed. If your school isn't withholding for you, you will have to make arrangements to budget that portion of your income -- you may pay on a quarterly basis.

 

Further, you could be subject to state income taxes. Not all states have an income tax and there is a great deal of variability in how this is done. There is some chance that even if your state has an income tax, your income won't be high enough to be eligible. 

 

There are more variables based on your resident status and your home country. You may be a "nonresident alien" or a "resident alien," the latter of which will have what is known as a green card. Determining residency status for an international graduate student is bafflingly difficult to me as it is filled with exceptions and this and that. The fundamental taxation difference is that resident aliens are taxed on American income as well as any foreign income while nonresident aliens are taxed only on American income. I'm guessing you'll eventually become a resident alien, but that is not clear to me since there are exceptions for students. You can see some scenarios here: http://www.irs.gov/Individuals/International-Taxpayers/Alien-Residency-Examples

 

Germany (if that's where you live) and many other countries have tax treaties with the USA with provisions for students. These vary so much that it is difficult for me to tell how that will affect you. It may mean that you simply pay taxes to your home country instead. This partially depends on whether you intend to become a permanent resident of the USA or leave as soon as you are finished studying.

 

Other insurance:

 

You will need medical insurance. This is a benefit you should receive from your school, though not all will offer it. As you weigh your options, make sure to find out the degree of medical insurance they will offer. Either fully provided it free of cost to you or an 85% subsidy (you pay 15% of premiums) are the most common. These are usually good plans in that they cover nearly everything and are more cost effective since the risk is spread across the entire working portion of the university. 

 

When you receive medical care, you'll incur any costs not covered by the insurance. Certain services like doctor visits are usually paid for by what is called a "co-pay," which is a small flat fee you pay for each visit. The insurance company covers the rest of the cost. Depending on the insurance plan and type of doctor, these can be $5-$100. Under our new healthcare law, several types of preventative doctor visits must be provided free of cost: alcohol abuse counseling, aspirin for people of a certain age, blood pressure screening, cholesterol screening, colorectal cancer screen above age 50, depression screening, diabetes screening if blood pressure is high, diet counseling if you are thought to have risk of obesity-induced disease, HIV screening, immunizations, obesity screening and counseling, sexually transmitted disease testing, and interventions for quitting tobacco use.

 

The costs for procedures and how you are expected to participate can vary. You start with what is called a deductible. You pay almost all costs (other than certain flat charges like the doctor visit co-payment and free preventative services) until you reach the deductible amount. So if you have a $500 deductible and you have a mole removed for $1000, you know you will have to pay at least $500 of it. After you have met your deductible, the amount of coverage provided by insurance varies. Generally speaking, insurance plans will cover 90%, 80%, or 70% of costs at this point. So-called "catastrophic plans" will cover even less. A new part of the law requires for money you pay for drugs to count against the deductible, since this was not the case before. Drug costs vary by drug, but generally speaking a plan will have several tiers -- preferred generics, nonpreferred generics, preferred name-brands, nonpreferred name-brands, and uncovered. Preferred generics (drugs that are old enough that they are no longer patented by the original pharmaceutical company) will often be free or just $5 or $10. The costs on others can vary widely.

 

Another provision of our new law is a yearly maximum out of pocket costs, which sets a limit of how much you have to pay for all medical costs other than the monthly premiums and co-payments. This is set at roughly 10% of your income. If this is the case for your plan, if you pay $1500 - say, $500 from deductible and the other $1000 on prescription drugs and other procedures that your insurance helped cover - then the insurance must cover 100% of costs from there forward. All of this resets at year's end. It is meant to prevent you from losing all of your money due to an ongoing problem. There is no maximum amount for the insurance to cover -- a new part of the law. This means there is no limit to how much the insurance company may have to spend on your healthcare (in the past, companies would cut you off after a predetermined amount, at which point you were no different than somebody without insurance). Foreign nationals are eligible for insurance and if it isn't provided by the school, you are allowed to buy it along with federal assistance as a student. 

 

Other insurance to consider:

 

Dental insurance may be useful and is usually inexpensive. $20/month would give you a great dental plan that would make trips to the dentist less expensive and guard you against costly procedures. Some of these plans hardly do anything to help save you money while others can be great if you have something come up.

 

Vision insurance is the least common of health-related insurance and probably isn't necessary for a graduate student unless you have particular needs or it is provided by your school (dental and vision are not the standard for graduate student compensation). Seeing an eye doctor can be expensive, but not prohibitively so under most circumstances. A cheap doctor visit may be $100-$150 if you need contacts and the contacts will probably cost you $100-$200 per year if you do not have vision insurance.

 

If you own a home, you'll need homeowner's insurance. I doubt you'll own one. If you rent, that is the landlord's problem.

 

If you wish to drive, you must have car insurance. You will lose your right to drive if you do not have car insurance. The prices and coverage can vary widely, but each state will have a minimum of liability coverage. Without much of an American driving record, I am guessing that you will assessed as a fairly high risk and will pay more than the average person your age.

[TakeruK]

The above advice was very good and very thorough. I'll share my experience as an international student and hope it helps as well.

 

Taxes: Unless you have some special exceptions, if you are on a F-1 or J-1 visa status, you will definitely be a non-resident alien (NRA) for tax purposes. Normally, there are rules based on how many days you've spent in the US in the past 3 years, but one over-riding exception is that the first 5 years of a F-1 or J-1 student will always be considered for NRA. After these 5 years, you can start counting time towards resident alien status. A lot of IRS documents distinguish between your future intent after your degree, but when you are on a F-1 or J-1 visa/status, these are by definition non-immigrant temporary visitor statuses for the purpose of obtaining a degree. So, for the vast majority of international students, we are all considered NRAs for tax purposes. 

 

As an NRA on F-1/J-1 status, you do not pay FICA, Medicaid, Social Security etc. 

 

This webpage does a good breakdown of how income tax works in the US: http://en.wikipedia.org/wiki/Income_tax_in_the_United_States. Unless you have special circumstances, you would take your total income (including fellowships unless they are specifically not taxable), subtract out your deductions, and then use the table to figure out what your tax bracket is. Tuition waivers are not taxable though because like textbooks, they are a required expense. Usually the tuition award is paid in a way that you don't even see it so you don't really have to worry about this part.

 

As for deductions, NRAs only qualify for the Personal Exemption ($3800 in 2012), not the Standard Deduction ($5950). If you keep textbook receipts, you can claim these deductions too. Here is an example of how you might have to pay taxes:

 

Let's say your stipend (not counting tuition waivers) is $29,000 in a tax year. Let's say you have $0 in textbooks and you can only claim the personal exemption. So your taxable income is $29,000-$3800=$25,200. 

 

From the "Marginal tax rates for 2013" table in the Wikipedia article, we see that the first $8925 of your income is taxed at 10% while the amount between $8925 and $36,250 is taxed at 15%. So, you pay 10% on the first $8925 of income = $892.50 and 15% on the rest (25,200-8925=16275), which is $2441.25 ($16275x0.15).

 

So, your total federal tax will be $892.50 + $2441.25 which is $3333.75, which works out to just over 11% of your total take-home stipend. You will still have to pay state taxes, which vary a lot from state to state.

 

At my school, we are provided free tax software specialized for international scholars which is very helpful. Also, my school automatically withholds 14% of my income (and does this for all NRAs) for taxes and I only get the money back after filing my tax return. 

 

If you want a good estimate of how much tax you will have to pay, somewhere between 10% and 15% of the total stipend is a good number to budget with. However, remember that your school might withhold more than you need to pay so you should budget your month to month expenses with this in mind. A safe number would be towards 15%. 

 

Insurance:

 

1. Medical/Dental: Many schools offer these. For me, most schools offered this almost completely paid for as part of my funding package. The above poster explains the co-pay system pretty well--it is a lot different than the Canadian (and some European) systems.

 

2. Auto insurance: see above post! Also, some states will require you to retake the entire driving test to get your driver's license. My auto insurance was not especially high because I had no American driving record though. However, I did have to provide Canadian driving records and it may be possible that they consider Canada close enough to the US. In terms of driving experience affecting my rates, the key factor is the length of time you have held a full privilege license--there are no "where did I drive" codes on my insurance policy (but again, maybe Canada is an exception).

 

3. Renters/Homeowners/Liability: I strongly recommend Renter's insurance if you are renting an apartment. The landlord has a policy on the building, but that is to protect themselves, not you. Having your own Renter's policy will protect you if someone robs your apartment, or if someone gets hurt in your apartment and they sue you, or if you cause major damage to the apartment and the landlord sues you (e.g. left the taps on and flooded the apartment, or left something in the oven and caused a major fire). I think for things like getting robbed, you might be able to sue the landlord if they were somehow at fault, but then that is an extra court fight. Our Renter's policy also protects against other liabilities and our property even when stored outside of our home and even things like all of our stuff in a UHaul box when we moved across the continent. Personally, I think it's worth it--we pay about $20/month for renters insurance and having more than one policy from the insurance company (auto and renters) gives us a discount that was larger than the cost of the renters policy. 

 

Oh, some landlords will require their tenants to provide proof of a renters policy if you have pets (or some might just require it in general). 

[CommPhD20]

Thanks for adding insights, as I was flying blind when it came to some of the immigrant status stuff. I've worked in Residence Life throughout my career so I've yet to deal much with landlords, so the renter's insurance recommendation is helpful too.

 

And OP, if the American healthcare system seems unbelievably complicated and exploitative....well, that's because it is. I wish we'd take some notes from our friends to the north. 

[IRToni]

Thanks, guys, this is indeed helpful!

 

I looked through the insurance policy, and it had something called a "co-insurance" of 3000 US$ a year. Is that the maximimum out-of-pocket amount? I also noticed that it says it covers 80% of the cost of surgery, e.g. Would that be that I have to pay 20% of such a surgery, but max. $3000 a year? Also, do you know if all insurances go by calendar year?

[TakeruK]

Thanks, guys, this is indeed helpful!

 

I looked through the insurance policy, and it had something called a "co-insurance" of 3000 US$ a year. Is that the maximimum out-of-pocket amount? I also noticed that it says it covers 80% of the cost of surgery, e.g. Would that be that I have to pay 20% of such a surgery, but max. $3000 a year? Also, do you know if all insurances go by calendar year?

 

Usually the maximum out-of-pocket amount is labelled as such. A number like $3000 per year does sound like a maximum out-of-pocket amount though. (My school's current plan has a maximum out of pocket of $1000). So, if the treatment is covered at 80% (sometimes written as 20% co-insurance), here is what happens when I go to a doctor for something that is covered at 80%:

 

1. The medical provider charges their full rate (let's say $500) and bills the insurance company.

2. The insurance company and medical provider actually have an agreement to charge a certain amount for certain procedures, so the rate is adjusted to this amount. Let's say it's $300.

3. Before any insurance coverage kicks in, I have to meet the deductible of my plan. It's currently $150 per year, so I will pay the first $150 of the $300 cost.

4. Now, the insurance covers the remaining amount at the 80% rate, so I pay 20% of the remaining $150 = $30.

5. I get a total bill from the medical provider (usually takes them a few months) for $150 + $30 = $180. The bill is usually super confusing because it will first show the rate in Step 1 and then the adjustments in steps 2, 3, and 4 are not always distinguished so that if you try to figure out how much you should have paid, it is a bit confusing. 

 

If I go back to this doctor a second time in the same benefit year, I don't have to meet the deductible again, so if I get the exact same treatment, I only pay 20% of the $300 cost = $60. Also, some plans have certain treatments that are covered without having to meet the deductible. For example, under my plan, I can get all vaccinations and annual checkups etc covered at 100% (i.e. free for me) without having to meet any deductibles. 

 

The maximum out of pocket amount means exactly that. In my plan, it clearly states that the insurance will cover 100% of any costs above this number per year. My maximum out of pocket is $1000, so once I have spent $1000 in a year, the insurance will cover everything. However, my current plan also says they have a maximum coverage of $500,000 per condition, so after I reach this amount, I have to pay everything again. I think the new Affordable Care Act no longer allows policies to have these limits though, but perhaps the new Act did not take effect yet when my current policy year started.

 

Finally, the benefit/insurance/policy year is not always the same as the calendar year. At my school, the school year is October 1 to September 30 but the insurance year is September 1 to August 31. Insurance is sold in "terms" that are 4 months long, so I pay for insurance in 4 month chunks and I can only drop out of the plan (or add a dependent) at these times. 

 

---

 

Also, I noticed your signature says you applied to a Canadian school. Health insurance works a little bit differently there--coverage is split into two parts. For Canadians, the government provides basic coverage either for free (through taxes) or at a rate that scales with your income. This covers doctors visits, emergency room, urgent care clinics, hospital stays, etc. If you are not Canadian, as an international student, you have to pay for this health care as a mandatory student fee, but many schools will offer a top-up award to pay for the cost. The second part (non-basic coverage for things like dental plans, vision, prescriptions, physiotherapy, etc.) are covered by an insurance plan similar to the US plans (with deductibles and co-pays etc.). Usually, you will be forced to buy this plan through the school unless you have your own coverage, but getting it through the school is usually a pretty good deal. You pay about $200-$300 per year, much less than US plans because most of the basic coverage is provided by the government.

 

Auto insurance is mostly the same, unless you are in a province where the insurance company is a "Crown Corporation", then you all buy insurance from the government and it's pretty simple since there are set rates for different levels of coverage. If the "Crown Corporation" makes extra money at the end of the year, it goes into reducing everyone's rates for next year since it's not really a business (although they still profit and pay their employees and CEOs etc.)

[IRToni]

Thanks, guys!
 

I also have another question: People talk a lot about "accruing credit scores", which apparently only works through taking out loans/credit cards and paying them back? How exactly does this system work? And what do you need credit for?

[yhakak]

It's important for getting loans (mortgage, car loan, etc.) and for credit cards. The better your credit, the less you'll pay for a loan. Of course, if you have no intention of settling in the states permanently you don't need to worry about that.

 

However, as you have better credit, you'll be eligible for better credit cards, which will give you better rewards, points/miles, that sort of thing. There is a whole subculture of people who get lots of these points/miles, and for a graduate student it can be a nice perk (i.e. not having to pay for travel). 

 

First things first - when you get to the USA, open a check account (make sure it's no-fee) and a savings account (if you can, especially if you get your funding in a large sum and don't need it all right away). Then, ask the bank about bank credit cards (again, try to get a no-fee card) so you can start building your credit history.

 

http://en.wikipedia.org/wiki/Credit_score_in_the_United_States

 

 

Thanks, guys!
 

I also have another question: People talk a lot about "accruing credit scores", which apparently only works through taking out loans/credit cards and paying them back? How exactly does this system work? And what do you need credit for?

[roguesenna]

Thanks, guys!

 

I also have another question: People talk a lot about "accruing credit scores", which apparently only works through taking out loans/credit cards and paying them back? How exactly does this system work? And what do you need credit for?

 

Be very cautious with your credit. It's very easy to screw up and very difficult and time consuming to fix. Any late bills, loan payments, credit card payments, etc, can all affect your credit. Mine got destroyed as a result of a move across the country. I missed my last home phone bill and didn't realize I still had an outstanding bill. The phone company never bothered to call my cell phone and kept sending letters to my old address so I did not find out about the outstanding bill until two years later when a collections company started harassing me. By then it was too late to fix the damage done to my credit.

 

In the U.S. you are entitled to check your credit for free once a year via the three different credit bureaus, Equifax, Experian and TransUnion. Each one must give you a free report and while they may be slightly different they are generally similar. Often they will try to get you to sign up for a free trial at the same time, so remember to cancel it if you don't want to pay. Your score can range from 350s to 800s, with 700 usually being a strong score.

 

http://www.usa.gov/topics/money/credit/credit-reports/bureaus-scoring.shtml

[TakeruK]

Thanks, guys!

 

I also have another question: People talk a lot about "accruing credit scores", which apparently only works through taking out loans/credit cards and paying them back? How exactly does this system work? And what do you need credit for?

 

Not just loans/credit cards. Basically every time you "owe" someone money, you will have a credit history with them. Like roguesenna said, you can get credit check for free from the 3 companies once a year. Many people stagger them so that they get a free report every 4 months. Sometimes these companies are pretty tricky because while credit history reports are free, they can charge you for a credit score. They also tend to sell more expensive comprehensive credit information too, and usually it's harder to find the free report they are obligated to give out and they will try to "upsell" you. Don't fall for it

 

On these credit history reports, you will find all the places you have credit with and basically all of this will help build up your credit and improve your credit score. Examples of business that will go on your credit reports: Phone company, electric company, internet company, TV service company, credit card companies, loans, car payments, insurance company (if you are on a payment plan) and basically any other service that asks you for permission to run your credit and/or any company in which you get services up front and pay for it later. The free credit history report will have information like the company name, the service it provides, how long your account has been open, how much your average payment is, how often is the payment (monthly? annually?) and probably most importantly, the status of your account (always pay on time? sometimes late? outstanding balance?). 

 

All of these factors contribute to a credit score which is an easy to use metric for creditors to determine how trustworthy you are and how much of a risk you are. This determines your interest rate and sometimes your ability to get a loan in the first place. Another independent factor in getting loans is how much your income is of course. Even if you have a credit score of 800, but if you have an income of $10,000 per year, they are not going to give you a $50,000 loan. 

 

Also, your credit score is affected by other factors. One important one is how long you have had credit. So, this is why most people are advised to get a credit card as soon as you are able to (e.g. 19 in most places) and keep it forever. If you are responsible with it, never cancel it, even if you rarely use it. Keep the limit on it low (it was probably low anyways when you first got it) for lower risk if you are concerned. Even when you move away from your home country, keep it if possible in case you move back. 

 

Oh, for Americans and International students, as soon as you are able to, you should remove cosigners like your parents from your phone bill, credit card, etc. Or at least transfer the account to your name so that you get the credit for having good credit! 

 

But what does this all mean for an international student? Having no credit in the US is not terrible, and it's better than having bad credit. Sometimes you will have to put down a large deposit because of the lack of credit though--we have to put down $200 deposit for the electric company even though our annual cost is something like $240 only. We won't even get that back until we move, which is annoying! But other places, like the cell phone company we're with will accept a I-20 or DS-2019 in lieu of a SSN and are okay with giving us the benefit of the doubt when we have no credit. Finally, you might be able to use your own country's credit reporting agencies report to help show that while you don't have any US credit, you can show previous history of on-time payments. Usually this works better for something like an apartment landlord where the person you are dealing with has power to make decisions instead of e.g. a customer service rep of a very large company. In Canada, we have Equifax and Transunion as well, so I think having our Canadian credit history report helped us get approved more easily. 

 

As for credit cards, if you apply for a student card, you might be able to get a card more easily even without any credit since many students applying for these cards have very little credit themselves. They tend to have low credit limits and you can usually be successful for a card within a few months of opening a US bank account. It's much better to get a card from your bank than some other company that sends applications to you in the mail (and the terms/rewards are usually better too). Many student cards have limited rewards but my Citi bank credit card gives me decent rewards! Once you show a stipend paycheck it should help a lot too. I'd get a card as soon as you can!

[VioletAyame]

Correct me if I'm wrong, but don't you need a SSN (social security number) to apply for a US credit card? I couldn't open one until I was on my OPT, thus allowing me to apply for a SSN. Also a few tips regarding payment: if you're forgetful like me, comfortable with it and have sufficient fund, put everything on auto-payment, including payment to your credit cards (link it to your bank account and use the overdraft protection service if your bank provides one). That will prevent any late payment which will not only affect your credit score but also incur late payment fee and interest. Also make sure of the large payment alert (it may be called something else) which will email or text you whenever a big transaction occurs in your account. Most banks now offer it, as well as fraud protection, which allows you to claim fraudulent charges on your account and dispute to get your money back (it has worked wonders for me). If you don't want to use auto-payment, try and arrange all your bill's cycles or payment due dates around the same time of the month, so you will be accustomed to sitting down and paying them off all at once. I believe many companies and banks will let you change your due dates without much of a hassle. And for credit score/history monitoring, I've been using CreditKarma. Their ads are annoying, but they're really free (so far) and although it's not as accurate or detailed as your one-a-year credit reports, it serves as a useful tool to get a general picture of your credit activity. I check it once a month to see if anything's wrong with my accounts and my debt.

[TakeruK]

Correct me if I'm wrong, but don't you need a SSN (social security number) to apply for a US credit card? I couldn't open one until I was on my OPT, thus allowing me to apply for a SSN. 

 

Yes, this is true, thanks for the reminder. I forgot to point this out. I am assuming you were on F-1 status for undergrad and could not get a SSN until you did OPT as a F-1 student? Basically, you do not get to have a SSN until you start getting paid for work. For most funded graduate students though, you will be funded through a RA or TA and thus be eligible for a SSN right away. When I checked in at my International Student Program upon arriving at my new school, they had me fill out all the required tax forms for payment and gave me a letter of employment to take to the Social Security Administration to apply for a SSN. You are allowed to apply for a SSN no earlier than 30 days before the start of work (which is the first day of the school year in my case) so I was able to get a SSN on one of my first days in the US. It takes about 5-10 days for it to come in the mail, so unfortunately, I did not have it before having to sign up for Internet, electricity etc which was part of the reason why I had to pay deposits. If you are in a situation where you can get a SSN before signing up for these types of services, I would recommend doing that!

[VioletAyame]

Yes, this is true, thanks for the reminder. I forgot to point this out. I am assuming you were on F-1 status for undergrad and could not get a SSN until you did OPT as a F-1 student? Basically, you do not get to have a SSN until you start getting paid for work. For most funded graduate students though, you will be funded through a RA or TA and thus be eligible for a SSN right away. When I checked in at my International Student Program upon arriving at my new school, they had me fill out all the required tax forms for payment and gave me a letter of employment to take to the Social Security Administration to apply for a SSN. You are allowed to apply for a SSN no earlier than 30 days before the start of work (which is the first day of the school year in my case) so I was able to get a SSN on one of my first days in the US. It takes about 5-10 days for it to come in the mail, so unfortunately, I did not have it before having to sign up for Internet, electricity etc which was part of the reason why I had to pay deposits. If you are in a situation where you can get a SSN before signing up for these types of services, I would recommend doing that!

Oh right, and I forgot we'll get paid during school, duh! I guess it can be a heads-up for people who want to do unfunded programs. And applying for an SSN should be pretty painless - I think beside the letter of employment you'll only need to passport with a valid I-94 and perhaps your I-20 (I'm speaking as a F-1 visa holder of course; I don't know much about J-1), but make sure to check with your school too. Also make sure to memorize your SSN number; you're not supposed to bring the card with you and you'll need the number for all sorts of things!

[Eruthos]

I am really confused.. as an international (european) grad student in the US with just a stipend (no fellowships, no loans), does one need to pay taxes yes or no? I have seen mentioning that there is a tax waiver or something...... can someone please elaborate?

[TakeruK]

I am really confused.. as an international (european) grad student in the US with just a stipend (no fellowships, no loans), does one need to pay taxes yes or no? I have seen mentioning that there is a tax waiver or something...... can someone please elaborate?

 

Probably yes. There may be certain situations where you might have a fellowship that is non-taxable, but I would assume yes to taxes unless you know otherwise. Your country may also have a tax treaty with the US that states otherwise but most Europeans and Canadians and Asian students I know have to pay taxes to the US government. Many tax treaties basically say that all US incomes will be taxed by the US only, and that for example, I won't have to pay taxes to the Canadian government for my US income (since Canadian tax laws generally require you to pay taxes on all worldwide income, but in some cases (e.g. students living outside of Canada), we only pay taxes on Canadian sourced income). 

 

Sometimes it's pretty hard to figure out your exact situation until you actually sit down and file your taxes. Your university might withhold a fairly large amount of your income anyways just in case. So, I would plan on not actually receiving up to 14% of your income each pay period and on average, expect to pay about 10-12% of your income in taxes (federal and state levels). At my program we generally get just over $3000 withheld and income tax returns give us about $700-$1000 back.

[fuzzylogician]

Two things you need to find out are (1) whether your country has a tax treaty with the US, and (2) what is the source of your funding. If you are very lucky, your country has a tax treaty where non-service fellowships are tax exempt, and that's the kind of funding you have. Note: the funding source is a bureaucratic question relating to what "pool" the money is coming from; you need to ask your department's admin about it, it may or may not be related to what you are then required to do in exchange for the funding (e.g. for tax reasons, I've been on fellowship funding for all 5 years I've been in my program, even in years when I've TAed). But these kinds of treaties are somewhat rare, normally there is only an exemption for some amount of money and you pay taxes on the rest, which still means that you'll pay quite a bit in taxes.

 

Until you know more, and since this is the case for most people, I would assume that you will pay taxes at the same rates as everybody else, and plan accordingly. It may very well be that you won't find out until it's time for you to do your taxes next year.

[Eruthos]

For what I found for Dutch citizens that go to the US:

 

- Income (stipend) will be taxed in the US according to non-resident alien taxation rules (up to 16%?)

- There is no income taxation in the Netherlands due to a treaty

- Social security premiums have to be paid over the bruto (before taxes) income at a rate of 5.4%, converted to Euro using the average value of the dollar over the period that the income has been received

 

Meaning: a stipend of $22,000 yearly gives a deduction of $3520 for taxes in US and $1188 in premiums in the Netherlands. This leaves $17,292 to spend, or $1441 monthly. It may be enough, but it's not much either..  Ah well, I'll first have to await if I get an offer xD.

[TakeruK]

For what I found for Dutch citizens that go to the US:

 

- Income (stipend) will be taxed in the US according to non-resident alien taxation rules (up to 16%?)

- There is no income taxation in the Netherlands due to a treaty

- Social security premiums have to be paid over the bruto (before taxes) income at a rate of 5.4%, converted to Euro using the average value of the dollar over the period that the income has been received

 

Meaning: a stipend of $22,000 yearly gives a deduction of $3520 for taxes in US and $1188 in premiums in the Netherlands. This leaves $17,292 to spend, or $1441 monthly. It may be enough, but it's not much either..  Ah well, I'll first have to await if I get an offer xD.

 

I think you are overestimating how much you will have to pay for US taxes. I mentioned it above, but see the tax tables here: http://en.wikipedia.org/wiki/Income_tax_in_the_United_States

 

I would estimate your federal tax owing to be:

$22,000 income - $3800 personal exemption = $18,200 taxable income

You pay 10% on the first $8925 = $892.50 tax from first bracket

And you pay 15% on the rest (18,200-8925=9275) = $1391.25 tax from second bracket

Total US federal tax: $2283.75

 

There's also state taxes which vary but I don't think they are very high but they would depend on your state. In California, it would be several hundred dollars. 

 

So, I think you will get to keep a bit more of your income than you estimated. However, your current estimate is a good working budget because it's likely the school will keep as much as you originally overestimated and you will only get a refund when you file taxes.

 

I can't comment on your owing to the Netherlands of course. But I will note that if I was a Canadian living in Canada and received foreign income (e.g. maybe I own a property in the US that I collect rent on) then I would normally have to pay Canadian taxes (social security premiums etc.) on my US income. But if I am not actually living in Canada and not benefitting from Canadian social security programs (e.g. most situations for PhD students in the US) then I don't have to pay Canadian taxes on my US income. 

Edited February 26, 2014 by TakeruK

[lolololo55]

I'm quite concerned about the taxes as an international student because I was in TN for an undergrad research internship and I paid 30% of taxes over the total of the scholarship. I hope it will be different in grad school. 

 

My two grad options are Utah and Indiana. Does anyone know how taxes work for international people in these states?

 

I asked the coordinator in Utah and she sent me this: 

'We do not withhold taxes from the stipend payments.  Because International taxes vary depending on tax treaties between countries I would ask our Tax Services office, http://fbs.admin.utah.edu/tax-services/ , for advice and that office will also require you to schedule a meeting with them after you arrive to go over your specifics.'

 

What does this mean?????  Do I have to pay or not?   

[TakeruK]

I'm quite concerned about the taxes as an international student because I was in TN for an undergrad research internship and I paid 30% of taxes over the total of the scholarship. I hope it will be different in grad school. 

 

My two grad options are Utah and Indiana. Does anyone know how taxes work for international people in these states?

 

I asked the coordinator in Utah and she sent me this: 

'We do not withhold taxes from the stipend payments.  Because International taxes vary depending on tax treaties between countries I would ask our Tax Services office, http://fbs.admin.utah.edu/tax-services/ , for advice and that office will also require you to schedule a meeting with them after you arrive to go over your specifics.'

 

What does this mean?????  Do I have to pay or not?   

 

It probably means you have to pay, but they won't withhold taxes from your payments, which means you will have to pay all of your taxes owed when you file your return for the tax year. Depending on your situation, you may also have to pay quarterly taxes (i.e. pay 4 payments a year instead of 1 big one). It's good that your school has a tax service office that offers advice--they will be able to give you the right information for your specific case!

 

As for budget, plan on paying between 10% and 15% of your total income in taxes. As grad students, we don't have to pay FICA taxes (social security, medicaid) so that saves us a big chunk of money too.