J-1 Visa UK student: tax question

[Rebecca12]

Hi, 

 

I'm heading over to study for my PhD in California on a $30,000 stipend (tuition fees are taken care of in addition to this stipend). I don't have to teach for the first 2 years, but for the final 3 years I will be engaged as a teaching assistant.

 

I'm trying to navigate the obscure world of stipend taxation and really would appreciate some help, viz.:

 

1)  Does anyone know how much of my $30,000 stipend (for living and personal expenses) will be taxed?

 

2)  As a UK citizen does anyone know whether a tax treaty is in place that makes any of my stipend exempt?

 

3) My spouse will be joining me on a J-2 visa as a dependent (she will hopefully be working after a few months, but not to support me).   Will this fact add any exemption to my taxable amount? Or, worse, increase it?

 

 

***If there is a UK PhD student currently studying in California (or the USA) I would be really grateful to hear from you to get some idea of how much you're taxed on a stipend!

 

Thanks so much!  

 

:-)

[TakeruK]

I'm not from the UK but I can answer all your other questions except for the UK tax treaty question.

 

1. It's almost certain that all of your $30,000 stipend will be taxed, unless you happen to hold one of the few special fellowships that are not taxed. In the US, you can only avoid paying tax on any tuition and mandatory fees for your program (so keep your receipts for mandatory textbook/supplies) but this will barely make a dent. My fellowships are automatically tax-deducted at the 14% level and you pretty much pay about 12% effective tax on your stipend. You can look at the tax laws in advance to estimate your tax liability, but you should estimate about 12%-14% of that $30,000 when you include both federal and state taxes. As a student, you only pay income tax, not "payroll tax" or "FICA" (Social Security/Medicaid).

 

2. Can't answer this one, sorry. For Canadians that happen to read this though, if you make less than $10,000 total, then all of that is tax exempt. I was lucky enough to fall under this category for this year because most of my funding comes from a Canadian government fellowship so the portion that the US pays is less than $10,000.

 

3. My J2 spouse is working in the US now. She pays a large amount of tax on her income as well. Because she is not a student, she does pay FICA taxes, which add another 6.2%. So about 18% of her income is taxed! The IRS will require the both of you to file your taxes as married, filing separately, so it has no direct effect on your tax amount. However, it is also not ideal because you cannot pool your income as a family (i.e. if she does not work right away, then by filing together you would be able to use her tax exemption towards your income; however, the IRS purposely forbids this for non-resident taxpayers).

 

Finally, as Canadians, my wife and I have to pay income tax to Canada as well on our US income. Not sure if the UK does this too. Luckily, there is a "foreign tax credit" that credits taxes already paid in the US towards our Canadian taxes. Since the US taxes are a lot higher than Canadian taxes (this is extremely ironic to me!), we don't ever owe any money to Canada (in fact, our incomes were low enough this year that Canada is granting us some extra cash). 

 

So, unless you have a special nontaxable fellowship or if there is indeed a special tax treaty between the US and UK, you should expect to pay taxes equal to about 12% to 14% of your income and your spouse would pay about 18% of their income in taxes (assuming your spouse is earning something like 15,000 to 40,000/year).

Edited April 13, 2014 by TakeruK

[Rebecca12]

Hi, and thanks for your really helpful reply!

 

One question: 'My fellowships are automatically tax-deducted at the 14% level and you pretty much pay about 12% effective tax on your stipend'.  Sorry to be ignorant, but do you mean an *extra* 12% on top of the automatic 14% or do you mean that the taxable amount will be between 12-14% in total?

 

Thanks again, 

 

Rebecca

[TakeruK]

Hi, and thanks for your really helpful reply!

 

One question: 'My fellowships are automatically tax-deducted at the 14% level and you pretty much pay about 12% effective tax on your stipend'.  Sorry to be ignorant, but do you mean an *extra* 12% on top of the automatic 14% or do you mean that the taxable amount will be between 12-14% in total?

 

Thanks again, 

 

Rebecca

 

No problem! I meant that after you compute your tax return in the US, the total taxable amount will probably be 12-14% total, so if the school withheld tax at the 14% level, you should get the difference back each Spring when you file! 

 

Also, to be clear, it will depend on your school whether or not you get taxes automatically withheld. If they are not withheld, this does not mean that you don't have to pay taxes--it means you will have to pay it all at once later (or you may even have to pay quarterly taxes). At my school, US students don't get taxes withheld unless they request it but international students all get the 14% deduction at the source. 

 

(So, this also means if you are budgeting how much money you'll have per month, plan on not having access to about 14% of your income initially although you may get a few hundred dollars back each spring when you do taxes).

[Rebecca12]

This is really a great help - thank you so much!   

 

 

If anyone else can give info on the UK tax treaty that would also be enormously helpful   :-)

[grads2016]

Hi, 

 

I'm heading over to study for my PhD in California on a $30,000 stipend (tuition fees are taken care of in addition to this stipend). I don't have to teach for the first 2 years, but for the final 3 years I will be engaged as a teaching assistant.

 

I'm trying to navigate the obscure world of stipend taxation and really would appreciate some help, viz.:

 

1)  Does anyone know how much of my $30,000 stipend (for living and personal expenses) will be taxed?

 

2)  As a UK citizen does anyone know whether a tax treaty is in place that makes any of my stipend exempt?

 

3) My spouse will be joining me on a J-2 visa as a dependent (she will hopefully be working after a few months, but not to support me).   Will this fact add any exemption to my taxable amount? Or, worse, increase it?

 

 

***If there is a UK PhD student currently studying in California (or the USA) I would be really grateful to hear from you to get some idea of how much you're taxed on a stipend!

 

Thanks so much!  

 

:-)

Hi Rebecca12 - I am British and in US on a J1

 

1) My experience of tax is similar to the above poster. My school withholds 14% and I file a return in the Spring (and sometimes get something back - but don't hold your breath..) Of course, the 14% relates to federal tax, if you live in state where there is also income tax and your fellowship falls within the bracket then you may be liable for more tax (and your school may withhold more tax). I think that you need to consult with your International Office and also Student Accounting (as opposed to HR Finance, because you will probably not be considered as employed while on a Fellowship)

 

2) With great regret, there is no US - UK tax treaty (except specific circumstances where you are in US on business and being paid by a company in the UK). It is crazy - when you look at the list of countries that do have a tax treaty that the UK does not have one - but this is the way it is at present.. So as far as I am aware your fellowship will not be exempt from tax. Another thing to consider is whether your school pays out the whole fellowship in advance, twice a year, or every month - as this can also effect how much a big tax deduction might hurt you in the first few months. Again, the Student Accounting office should be able to tell you how they will pay you. With regards to paying tax in UK - I pay none and as far as I am aware, I am not liable to do so. The only thing you might want to keep up is you National Insurance payments - although I think that you may be exempt while in FT education.

 

3) My spouse lives in US and is employed (J2 visa) - We are both British. As far as I am aware, his employment has not affected my tax at all - however, I imagine that this might be different were your spouse to be earning above average. Other thing to consider is that you are not considered as married (for tax purposes) if you are a non resident alien, so you don't get any of the tax benefits that US married couples might get (if in fact there are any in the grad school scenario)

 

Hope this is helpful

[Rebecca12]

That's really helpful - thank you so much for taking the time!   :-)