Funding: How much is left after taxes etc?

[Eshtah]

Hey guys,

I am an international student who will be coming to the US this fall for a PhD in the Humanities and I need help understanding the offers I am receiving. Most of all: How much money will I actually have after taxes etc.? If Georgetown offers me 28000 for 8 months, what is the net value that I will have in my bank account? 

I will speak to the director of my program again next week. Do you think I can ask about that?

Thanks a bunch for any insight!

[TakeruK]

In the US, taxes are all very dependent on your personal situation so it is hard for someone who isn't in a similar situation as you (e.g. your program director) to be able to answer that question. Don't ask this to your program director.

Instead, look at this Wikipedia article: https://en.wikipedia.org/wiki/Income_tax_in_the_United_States 

A few key things to keep in mind:

1. You have to pay federal tax as well as state tax. There may also be tax for your specific city.

2. If you are not a resident alien for tax purposes (if this is your first time in the US then you will not be a resident alien), you cannot claim the standard deduction mentioned in the Wiki article. You can only claim the personal exemption of around $4,000. Therefore, you will be taxed on $24,000 of income.

3. On average, a grad student earning $25k-$30k per year will be taxed at a rate around 12%. But a lot of things depend on what state you live in, whether your home country has a tax treaty with the US and whether you support dependents (but your spouse, if you have one, won't count). Safe thing to do is to budget 15% for taxes and treat the money returned each year as a bonus.

[DBear]

@Eshtah regarding the tax treaty that @TakeruK mentions - if you google "France US tax treaty" for example, you should easily be able to find if your country has a treaty or not. If it does, it should also have information about what you are exempt from.

@TakeruK I found the tax treaty and seems that I am exempt but haven't filed taxes in the U.S. for such a long time so, do you know, by any chance, if there's a box I tick off on my tax returns or if I'll just automatically be exempt and it will show up on my W2 (if that's what is was) or if you have to request a refund or something? I'm hoping maybe the international student office would know since the school I'm most likely going to be at is a big school with a large int'l student population, but tax stuff is hard.. so..

Also, would such treaties exempt one from state tax? From what I can tell, this seems to be specific for federal income tax.. but not sure..

Thanks!

[BeeKayCee]

I was under the impression that It depends on the funding you are receiving, and that many funding offers can be tax free?

http://www.finaid.org/scholarships/taxability.phtml

"Your scholarship may or may not be taxable. Generally speaking, a scholarship or fellowship is tax free if you are a degree candidate and the award is used to pay for tuition and required fees, books, supplies and equipment, however there are some scholarship and fellowship opportunities that are not tax exempt."

Also see: https://www.irs.gov/publications/p970/ch01.html "This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. The educational assistance can be for a primary or secondary school, a college or university, or a vocational school."

Please correct me if I am wrong tho, cause I'm new to this and now I'm scared. 

Edited March 5, 2017 by BeeKayCee
added IRS link

[TakeruK]

9 hours ago, DBear said:

 

@TakeruK I found the tax treaty and seems that I am exempt but haven't filed taxes in the U.S. for such a long time so, do you know, by any chance, if there's a box I tick off on my tax returns or if I'll just automatically be exempt and it will show up on my W2 (if that's what is was) or if you have to request a refund or something? I'm hoping maybe the international student office would know since the school I'm most likely going to be at is a big school with a large int'l student population, but tax stuff is hard.. so..

Also, would such treaties exempt one from state tax? From what I can tell, this seems to be specific for federal income tax.. but not sure..

Thanks!

It's not automatic. Your school may ask you to fill out Form W-4 (https://www.irs.gov/pub/irs-pdf/fw4.pdf) when you arrive, however, this is mostly used for American earners (if non-resident aliens fill out this form, we have to do special things to it, as specified in the instructions for non-resident aliens). I honestly do not remember if I filled one of these out 5 years ago, but I know my spouse definitely has for their "real person job". The W-4 is the form that tells your employer how much to withhold etc.

Your school and country's treaty may be different than my school and the Canada-US treaty. In my case, my school's HR department knows nothing about my treaty. The international student office always try to stay out of taxes because they don't want to give advice they are liable for. The office won't advise me on taxes but they do run workshops led by actual tax attorneys to help us.

The Canadian-US tax treaty is simple: Canadians who are non-resident aliens in the US earning less than $10,000 in a tax year are exempt from all US taxes on that income (they will still claim this income in Canada though). However, this is not a "progressive" limit. If you earn $9,999, you pay no taxes. If you earn $10,001, you pay the full amount of taxes. I am not sure what happens if it's $10,000 (i.e. I don't remember if the wording is "$10,000 or less" or "less than $10,000"). 

Because it depends on the total amount earned at the end of the year, there's no good way to get the school to withhold less taxes. It is something you have to pay first and then claim later if you're eligible. I am not sure if this is true for all tax treaties or just the Canada-US one. In order to claim it, you fill in a part of the 1040-NR (the main federal tax form) citing the specific section in the US Tax Code. I use tax software designed for non-residents that figures out automatically whether or not I'm eligible each year based on my income. The school provides this software for free, and if yours does not, make sure you buy specifically the non-resident version of any tax software!

Finally, no, I don't think state taxes are part of these tax treaties. State taxes can run very differently. For example, as a non-resident alien in the US, I do not pay US federal taxes on my worldwide income, however, as a California non-resident, I still pay California taxes on any income earned while in California. For example, I had a Canadian fellowship for a few years and the payment came in the form of a cheque sent to me by the Canadian government. This income is not taxable by the US federal taxes but I still paid California tax on it because it was income earned for work in the state, despite the foreign source. State taxes are usually way less though: it's about 1% to 2% for me, and California has one of the highest state taxes.

4 hours ago, BeeKayCee said:

I was under the impression that It depends on the funding you are receiving, and that many funding offers can be tax free?

http://www.finaid.org/scholarships/taxability.phtml

"Your scholarship may or may not be taxable. Generally speaking, a scholarship or fellowship is tax free if you are a degree candidate and the award is used to pay for tuition and required fees, books, supplies and equipment, however there are some scholarship and fellowship opportunities that are not tax exempt."

Also see: https://www.irs.gov/publications/p970/ch01.html "This chapter discusses the income tax treatment of various types of educational assistance you may receive if you are studying, teaching, or researching in the United States. The educational assistance can be for a primary or secondary school, a college or university, or a vocational school."

Please correct me if I am wrong tho, cause I'm new to this and now I'm scared. 

As your quote says, funding that pays for your tuition, required fees, books, supplies and equipment are tax free. So if your tuition is $15,000 and you get a total package of $25,000, then the first $15,000 is tax free. However, with many grad programs, we get a tuition waiver plus a stipend of (for example) $25,000. In this case, the entire $25,000 is taxable (minus any deductions) since you already got a tuition waiver. 

[DBear]

@TakeruK I may have to end up naming my firstborn after your gradcafe handle.Thank you so much!!

I'll have to bookmark this for next year!

[TakeruK]

Glad to be helpful