Question about taxes

[aeroaero]

Hello everyone, I got an offer with a stipend of amount $ x for the first 9 months of the PhD. Is this amount before or after taxes? If it is before, what is an average % I have to pay on it (California)?

Thanks

[fuzzylogician]

It would be before tax. Here is information about federal taxes. There will also be state taxes to pay on top of that, but federal taxes is the big one. http://en.wikipedia.org/wiki/Tax_bracket#2013_tax_brackets_under_current_law

[serenade]

I have a question about this as well. My stipend will be $19,000. These are the calculations I've done so far but I have no clue if I'm on the right track: 

 

From what I can tell, the federal tax brackets for 2015 will be 10%: $0-$9,225 and 15%: $9,226-$37,450. So the first $9,225 will be taxed at 10% (equaling $922.50) and the other $9,775 will be taxed at 15% (equaling $1466.25) for a total of $2,388.75. That's federal.

 

For the state I'm moving to, the flat tax rate is 3.4% so do I calculate 3.4% of 19,000 and then add that number ($646) to the $2,388.75 above to get federal and state together? That would be $3,034.75, which would be around 15.9% of my $19,000 stipend.

 

Am I going about the calculations correctly?

[fuzzylogician]

Disclaimer: I am NOT an expert on taxes. That said, yes, at least when I do my taxes that's how it comes out. Both federal and state taxes are calculated out of the gross amount earned throughout the year. In my state, though, you could be too poor to have to pay state tax, which I always was so I would get my taxes reimbursed. Worth looking into. 

[TakeruK]

I have a question about this as well. My stipend will be $19,000. These are the calculations I've done so far but I have no clue if I'm on the right track: 

 

From what I can tell, the federal tax brackets for 2015 will be 10%: $0-$9,225 and 15%: $9,226-$37,450. So the first $9,225 will be taxed at 10% (equaling $922.50) and the other $9,775 will be taxed at 15% (equaling $1466.25) for a total of $2,388.75. That's federal.

 

For the state I'm moving to, the flat tax rate is 3.4% so do I calculate 3.4% of 19,000 and then add that number ($646) to the $2,388.75 above to get federal and state together? That would be $3,034.75, which would be around 15.9% of my $19,000 stipend.

 

Am I going about the calculations correctly?

 

I currently pay taxes in California too. You have the right idea but you made a few errors in your calculations because you forgot to include the exemptions/deductions (i.e. you would not pay tax on all of your income).

 

If you are not a resident for tax purposes, you can only claim the personal exemption which is about $4000, so you only pay tax on $15,000 of income. If you are a resident, then you get an additional standard deduction.

 

I am not a resident and my stipend is around $30,000 before tax. I pay about 14% in taxes. So you should expect to pay less!

[rising_star]

Just chiming in to say that not all states have an income tax. Tennessee and Florida come to mind, I think also Texas and Alaska. 

[tspier2]

It also depends on why you are getting paid. For my program, for example, we do not have any TA or RA requirements for the first two years. After consulting a lawyer, it was made clear to us -- in Louisiana -- that the fellowship is treated as a non-taxable scholarship.

[Horb]

Yeah I talked to my accountant and he said if you aren't working for it it becomes a non-taxable scholarship too.

[serenade]

Yay! This is great news! Thanks guys! So since I won't be a resident when I move to Indiana, I don't qualify for the standard deduction - just the personal exemption - right?

So taking $15000 as my taxable income, I would pay 10% on the first $9225 (equaling $922.50) and then 15% on the remaining $5775 (equaling $866.25) for a total of $1788.75

So do I then calculate 3.4% state tax from $15000 (equaling $510) and add it to the $1788.75, totalling $2298.75 for federal and state combined? That would only be about 12% of my stipend.

Does that sound more or less correct?

[TakeruK]

That sounds right. When you say you "won't be a resident when [you] move to Indiana", do you mean that you won't be an Indiana state resident, or a United States resident. If you are American / US resident for tax purposes, then you still get the standard deduction on your federal taxes.

 

Also for what it's worth, in California, my stipend is clearly "not for work" (we even get a letter stating that "no services were performed in exchange for the money paid") but it is still definitely a taxable scholarship. Obviously, trust tax accountants over random internet people, but for other people reading this, just saying that it's not always true that no work = non-taxable scholarship. 

[serenade]

Ah, I see. Yes, I'm a U.S. resident (lived in Georgia my entire life). So that means I'd get the standard deduction plus the personal exemption? That would mean $19,000 minus $4000 (personal exemption) minus $6300 (standard deduction) = $8700 taxable income. That would put me in the lowest federal tax bracket, meaning I would only be taxed 10%, which would equal $870. With 3.4% state tax added in ($295.80), that would equal $1,165.80 for federal and state combined, which would only be about 6% of my stipend. That sounds too good to be true!! Am I missing something????

Edited March 12, 2015 by serenade

[random17]

Also for what it's worth, in California, my stipend is clearly "not for work" (we even get a letter stating that "no services were performed in exchange for the money paid") but it is still definitely a taxable scholarship. Obviously, trust tax accountants over random internet people, but for other people reading this, just saying that it's not always true that no work = non-taxable scholarship. 

 

Yep, this is also true for the US state where I pay taxes. I'm a US citizen but a Canadian resident, so I pay taxes in both countries. Canada only taxes my earned wages (TAship) and my scholarship is tax-exempt, but when I file in the US I have to pay taxes on my Canadian scholarship income because it was not taxed in Canada.

 

My dual-country situation is obviously complicated, but the main point is that tax law in my state (like California, and I thought also federally, but maybe not) also dictates that fellowship/scholarship income is taxable, unless it is a fellowship used to pay tuition. Like TakerUK said, your accountant is more trustworthy than random people on the internet, but this is what my trustworthy accountant has told me about US tax codes.

[TakeruK]

Ah, I see. Yes, I'm a U.S. resident (lived in Georgia my entire life). So that means I'd get the standard deduction plus the personal exemption? That would mean $19,000 minus $4000 (personal exemption) minus $6300 (standard deduction) = $8700 taxable income. That would put me in the lowest federal tax bracket, meaning I would only be taxed 10%, which would equal $870. With 3.4% state tax added in ($295.80), that would equal $1,165.80 for federal and state combined, which would only be about 6% of my stipend. That sounds too good to be true!! Am I missing something????

 

No this sounds right! Taxes are supposed to be paid according to how much you make, and no disrespect, but $19,000 is not that much to live on, so the government better be taxing you less!

 

Don't forget that if you keep receipts for mandatory educational expenses (e.g. textbooks) then you can also claim them as deductions too.

 

 

Yep, this is also true for the US state where I pay taxes. I'm a US citizen but a Canadian resident, so I pay taxes in both countries. Canada only taxes my earned wages (TAship) and my scholarship is tax-exempt, but when I file in the US I have to pay taxes on my Canadian scholarship income because it was not taxed in Canada.

 

My dual-country situation is obviously complicated, but the main point is that tax law in my state (like California, and I thought also federally, but maybe not) also dictates that fellowship/scholarship income is taxable, unless it is a fellowship used to pay tuition. Like TakerUK said, your accountant is more trustworthy than random people on the internet, but this is what my trustworthy accountant has told me about US tax codes.

 

Sorry to hear that I'm a Canadian citizen and a US non-resident, so I pay American taxes only on US income but Canadian taxes on all my worldwide income. However, graduate student income is not taxable in Canada (TA and RA ships are considered employment, not student income so they are taxable; however, since I get that letter from my school saying no services are performed, all of my US income is non-taxable in Canada!)

[LiztheWiZ]

I earned a bunch of fellowships for research travel last summer and our accountant tells us that those expenses can't be deducted. Any one else have this problem?

[TakeruK]

I earned a bunch of fellowships for research travel last summer and our accountant tells us that those expenses can't be deducted. Any one else have this problem?

 

I am not certain, but I am pretty sure these are not deductible expenses, neither in Canada nor the US.

[Eigen]

Generally, to note, a non-taxable fellowship just means that you aren't charged tax on the amount that goes to pay for school-related expenses. 

 

It doesn't mean the entire stipend is tax free. 

 

So, for example, a TA or RA can't subtract fees, books, etc. paid to the University from wages- they are earning an income in exchange for services. They can deduct those expenses, but not just subtract it from the total.

 

A scholarship with no service to the University can subtract, directly, from the total amount, any amount paid for fees, or other required items. Any "income" from the scholarship, however, has to be reported. Basically, the amount of the non-taxable fellowship spent on required educational expenses is not reported as income. 

 

This is made quite clear in the IRS booklet on scholarships and fellowships. 

 

The same booklet also lists deductible expenses, but in brief they are required fees (i.e., things you cannot enroll without paying) and books required for courses. 

 

As an example, my $32k NSF Fellowship (or previous state government fellowships) is a "non-taxable" fellowship. I deduct ~2.5k worth of fees and books from it that I pay to the University/keep receipts for, and report the remaining ~29.5k as income. 

 

I know this is the case in Louisiana, and definitely the case for federal income taxes.

[LiztheWiZ]

Thank you!!!

[MathCat]

No this sounds right! Taxes are supposed to be paid according to how much you make, and no disrespect, but $19,000 is not that much to live on, so the government better be taxing you less!

 

Don't forget that if you keep receipts for mandatory educational expenses (e.g. textbooks) then you can also claim them as deductions too.

 

 

 

Sorry to hear that I'm a Canadian citizen and a US non-resident, so I pay American taxes only on US income but Canadian taxes on all my worldwide income. However, graduate student income is not taxable in Canada (TA and RA ships are considered employment, not student income so they are taxable; however, since I get that letter from my school saying no services are performed, all of my US income is non-taxable in Canada!)

So if I receive part of my funding as TA in California, I would be taxed on that in both the US and Canada?

Edited March 28, 2015 by MathCat

[TakeruK]

So if I receive part of my funding as TA in California, I would be taxed on that in both the US and Canada?

 

Yes and no.

 

As a Canadian earning US income, you will first have to file your taxes with the IRS.

 

Then, you file your taxes with the Canada Revenue Agency (CRA). Grad student scholarships/fellowships are not taxable in Canada, so you don't have to report that income. You just report your TA and/or RA income (only employment income) and calculate how much taxes you would owe in Canada. Remember you can take the all the deductions/exemptions as before (i.e. first $11,000 or so is not taxable). 

 

Next, any leftover educational tax credits are applied against your Canadian tax owed. You may or may not have some from undergrad.

 

Finally, any taxes you already paid to the IRS are deducted from your Canadian tax owed ("Foreign Income Tax Credit" or something like that). This way you don't get "double-taxed" (but see note below). You will have to file your US taxes before you file Canadian taxes because you will have to include a copy of your US tax form in your Canadian tax package. Now, if you still have Canadian tax owed after all this, then you will have to pay the CRA the rest. It is unlikely that this is the case though since for our income bracket, the American taxes are generally much higher than Canadian taxes.

 

Note about double taxing: Technically you are still double taxed because you have to use up your educational tax credits before your Foreign Income Tax Credit is applied. However, you can still earn more educational tax credits from the tuition you pay to the US school. This is where it really helps to go to a private school, I claim $40k/year for educational tax credit that will eventually create a very nice tax shelter for me when I return to Canada (but if I do a postdoc in the US then this will go away very fast!)

[Crucial BBQ]

Just chiming in to say that not all states have an income tax. Tennessee and Florida come to mind, I think also Texas and Alaska. 

States without income tax or sales tax have higher other taxes and fees, the #1 being property tax.  

 

Yay! This is great news! Thanks guys! So since I won't be a resident when I move to Indiana, I don't qualify for the standard deduction - just the personal exemption - right?

So taking $15000 as my taxable income, I would pay 10% on the first $9225 (equaling $922.50) and then 15% on the remaining $5775 (equaling $866.25) for a total of $1788.75

So do I then calculate 3.4% state tax from $15000 (equaling $510) and add it to the $1788.75, totalling $2298.75 for federal and state combined? That would only be about 12% of my stipend.

Does that sound more or less correct?

Just to point something out:  

 

I am not sure how stipends work, but if taxes are being removed from each check I would not worry about it.

 

If you are getting the entire amount and it is not being taxed up front then I would suggest putting aside at the very least the calculated 15% to cover your behind.  Others, you may calculate 12% but in reality it turns out that your liability is higher, it sucks to scramble to find that extra money you owe...

 

That sounds right. When you say you "won't be a resident when [you] move to Indiana", do you mean that you won't be an Indiana state resident, or a United States resident. If you are American / US resident for tax purposes, then you still get the standard deduction on your federal taxes.

 

Also for what it's worth, in California, my stipend is clearly "not for work" (we even get a letter stating that "no services were performed in exchange for the money paid") but it is still definitely a taxable scholarship. Obviously, trust tax accountants over random internet people, but for other people reading this, just saying that it's not always true that no work = non-taxable scholarship. 

If it goes into your pocket, Uncle Sam wants his cut.  Legally, drug dealers are "required" to pay taxes, too.  So is the kid who mowed your neighbor's lawn for $5.  

 

*There are certain allowances made for gifts, but really in the U.S. if you "earn" any amount of money it is taxable.  

Edited March 28, 2015 by Crucial BBQ

[MathCat]

Very helpful, thanks!

[niketon]

I am from Bangladesh. I will get tax treaty up to $8000. My stipend is $24000. Fees $2770. Then what would be the tax? (University is in raleigh,NC.)