Taxes and fellowships

[SarahBethSortino]

Anyone know about the tax situation for fellowships? I'm pretty sure that they are taxable but I've received a lot of conflicting information. How have current students handled filing taxes for grad fellowships?

[Eigen]

The vast majority of fellowships are taxable as normal income. The standout difference is that anything used for (a) tuition and fees, or (b) required books doesn't count as income. 

Filing it is difficult- you won't always get a W2 with your income reported, frequently you have to report fellowship income as if you were self employed. Many fellowships aren't from the university as your employer, but are passed through from another fund. This means you often have to either file quarterly taxes or pay the year end penalty (I opted for the latter). 

The IRS document on Taxes for Scholarships and Fellowships is surprisingly helpful, but many other resources tend to be more confusing than they are helpful. 

A lot of tax software does a really bad job of it, as well- I did mine by hand to avoid the headache. Some will try to tell you that your tuition waiver is taxable income (it's not, unless you're employed by the university in some other capacity full time and the tuition waiver is an employment benefit). 

[SarahBethSortino]

On ‎5‎/‎19‎/‎2017 at 0:43 PM, Eigen said:

The vast majority of fellowships are taxable as normal income. The standout difference is that anything used for (a) tuition and fees, or (b) required books doesn't count as income. 

Filing it is difficult- you won't always get a W2 with your income reported, frequently you have to report fellowship income as if you were self employed. Many fellowships aren't from the university as your employer, but are passed through from another fund. This means you often have to either file quarterly taxes or pay the year end penalty (I opted for the latter). 

The IRS document on Taxes for Scholarships and Fellowships is surprisingly helpful, but many other resources tend to be more confusing than they are helpful. 

A lot of tax software does a really bad job of it, as well- I did mine by hand to avoid the headache. Some will try to tell you that your tuition waiver is taxable income (it's not, unless you're employed by the university in some other capacity full time and the tuition waiver is an employment benefit). 

THanks for the advice. I think at this point I'm going to have to go to an accountant. I've heard from a lot of other people that tax software doesn't quite know how to deal with us. What a headache!

[Horb]

On 5/25/2017 at 9:59 PM, SarahBethSortino said:

THanks for the advice. I think at this point I'm going to have to go to an accountant. I've heard from a lot of other people that tax software doesn't quite know how to deal with us. What a headache!

I have fellowships. I use turbotax. It knows how to deal with it. It asks if you got any fellowships. Then it asks for information: tuition costs, fee costs, costs of required materials. However, these items are ONLY tax deductible if you had to buy them from your school and they were required for your course of study (i.e. a computer scientist who needs a specific computer for a class). 

It really isn't that hard. People just don't understand it and/or are mad they have to pay taxes on it. If you are only on fellowship, you should pay quarterly taxes, which is actually really easy. But if you have a part time job, chances are you won't need to pay quarterly taxes. It depends on how much you make. I just don't want to pay a penalty, so I would do quarterly taxes.

[Eigen]

1 hour ago, Horb said:

I have fellowships. I use turbotax. It knows how to deal with it. It asks if you got any fellowships. Then it asks for information: tuition costs, fee costs, costs of required materials. However, these items are ONLY tax deductible if you had to buy them from your school and they were required for your course of study (i.e. a computer scientist who needs a specific computer for a class). 

It really isn't that hard. People just don't understand it and/or are mad they have to pay taxes on it. If you are only on fellowship, you should pay quarterly taxes, which is actually really easy. But if you have a part time job, chances are you won't need to pay quarterly taxes. It depends on how much you make. I just don't want to pay a penalty, so I would do quarterly taxes.

Turbotax one year told me I owed 20,000 in taxes, because it refused to not count my tuition waiver as income, no matter how I answered it. Granted, this was back in 2009 and I'm sure it's gotten better sense then. 

Compared to the ~30 minutes it takes me to do my taxes by hand, not worth the trouble. 

[Horb]

On 6/1/2017 at 1:40 PM, Eigen said:

Turbotax one year told me I owed 20,000 in taxes, because it refused to not count my tuition waiver as income, no matter how I answered it. Granted, this was back in 2009 and I'm sure it's gotten better sense then. 

Compared to the ~30 minutes it takes me to do my taxes by hand, not worth the trouble. 

I've never had that issue and I've used it for the last three years. I think they fixed it. For something that is free, I'm happy to use Turbotax and double check it, but I also have other deductions to claim.

[AP]

In addition (and this goes to international students that might be reading), residency status direct informs how we do taxes and what we report. There are some internal awards that my fellow American do not pay taxes for and I do. In my school, international students and scholars have access to workshops and free software and that made everything a little bit less confusing. 

On 6/1/2017 at 2:40 PM, Eigen said:

Turbotax one year told me I owed 20,000 in taxes, because it refused to not count my tuition waiver as income, no matter how I answered it. Granted, this was back in 2009 and I'm sure it's gotten better sense then. 

Compared to the ~30 minutes it takes me to do my taxes by hand, not worth the trouble. 

I have used Thomas Reuters software. 

[laleph]

Thanks for starting this thread! Very helpful.

For those of you who've been through the process, could you give an approximation of what you've had to pay in federal and state taxes relative to your stipend? My stipend is a bit shy of $32k, but I'll be in New York City. I'm trying to figure out how far the stipend will get me after taxes. :-/

Edited June 20, 2017 by laleph

[Horb]

11 hours ago, laleph said:

Thanks for starting this thread! Very helpful.

For those of you who've been through the process, could you give an approximation of what you've had to pay in federal and state taxes relative to your stipend? My stipend is a bit shy of $32k, but I'll be in New York City. I'm trying to figure out how far the stipend will get me after taxes. :-/

Well, State taxes differ, and you might also have to pay local taxes, so you look those up. If it is a fellowship, you're responsible for paying quarterly taxes because it won't be taken out of the paycheck most likely. If it is a stipend, they'll be taken out automatically. Either way, the tax rate is the same because it is taxed as income. I make about 32K and my tax rate is roughly 18%. I don't get much of that back, either, though I generally claim 1 withholding. 

[laleph]

1 hour ago, Horb said:

Well, State taxes differ, and you might also have to pay local taxes, so you look those up. If it is a fellowship, you're responsible for paying quarterly taxes because it won't be taken out of the paycheck most likely. If it is a stipend, they'll be taken out automatically. Either way, the tax rate is the same because it is taxed as income. I make about 32K and my tax rate is roughly 18%. I don't get much of that back, either, though I generally claim 1 withholding. 

Wow that seems crazy high. I've spoken to a couple current grad students at the school I'll be attending, and they've told me they pay around 1000 in taxes, a far cry from roughly 6000 you've been paying! 

Edited June 20, 2017 by laleph

[Horb]

6 minutes ago, laleph said:

Wow that seems crazy high. I've spoken to a couple current grad students at the school I'll be attending, and they've told me they pay around 1000 in taxes, a far cry from roughly 6000 you've been paying! 

It depends on how they are doing their withholdings, how much they are able to deduct, etc. I'd be shocked it someone making 32K is only paying 1000. Even when I was working retail at $8.25 an hour I was having 15-18% withheld, if not 20%.

Also, big note: I'm not a tax professional by any means, but a quick google search suggests the following: For someone making under 75K, they would be taxed $1,855 plus 15% of the amount over $18,550. That is just for federal. State and local taxes would be taken out as well. Now, your friends might get a lot back if they have deductions, but maybe they mean after deductions they only pay $1000, but they should be "paying" more throughout the year? I'm not sure. I would just recommend budgeting 15% to pay for quarterly taxes. 

 

Edited June 20, 2017 by Horb

[Eigen]

1 hour ago, laleph said:

Wow that seems crazy high. I've spoken to a couple current grad students at the school I'll be attending, and they've told me they pay around 1000 in taxes, a far cry from roughly 6000 you've been paying! 

That sounds remarkably small. 

I was paying around $3500 back in 2009 when I was married and my $30k stipend was our soul income (so we could use the full married deduction). My single friends were paying around $4000-$5000, depending on other withholdings and circumstances, with similar stipends. 

Are they perhaps just considering federal taxes and not state? Even then, $1000 seems small. Turbotax's quick and dirty calculations say that federal taxes alone will be $2200 for a single person on a $32k stipend, and my state taxes are roughly equivalent to my federal taxes.

[Horb]

44 minutes ago, Eigen said:

That sounds remarkably small. 

I was paying around $3500 back in 2009 when I was married and my $30k stipend was our soul income (so we could use the full married deduction). My single friends were paying around $4000-$5000, depending on other withholdings and circumstances, with similar stipends. 

Are they perhaps just considering federal taxes and not state? Even then, $1000 seems small. Turbotax's quick and dirty calculations say that federal taxes alone will be $2200 for a single person on a $32k stipend, and my state taxes are roughly equivalent to my federal taxes.

Yeah, I think I pay, like, $4000 or something, and my state has rent deductions too!

[laleph]

Thanks for all your responses. I think I'm going to consult an accountant the first year. It's all over my head.

I've been living most of my adult life in France, where, amazingly, the tax service basically does your taxes for you. For basic reporting, you just have to click "oui" on a pre-filled-out form. Deductions take a teeny bit longer -- but even those are easy to find/understand. I completed my taxes this year in a whopping 3 minutes.

Also, for all Americans' griping about taxes, I've paid less in taxes overall here than what I understand most of you pay, for roughly the same income as I'll be making as a grad student. And, ya know, I've had amazing health insurance since I got here. Long live the social safety net (and, sigh, gritting teeth re: Macron).

[Eigen]

49 minutes ago, laleph said:

I've been living most of my adult life in France, where, amazingly, the tax service basically does your taxes for you. For basic reporting, you just have to click "oui" on a pre-filled-out form. Deductions take a teeny bit longer -- but even those are easy to find/understand. I completed my taxes this year in a whopping 3 minutes.

Interestingly enough, the IRS has been trying to offer this system here for years, but it keeps getting blocked by tax preparer lobbyists, who argue that the government would use it to "trick people out of money", even though the IRS's proposed system would let you *either* use the pre-filled form OR do it yourself. 

Given the average cost of an accountant.... I'd much prefer to just get a bill and not have to deal with it yearly. I could go over it and see if anything looked wrong, but wouldn't have to figure it all out from scratch. 

[MarineBluePsy]

Only the living stipend portion of my fellowship was taxable as regular income and I received the appropriate tax documents to file from my school.  I didn't have any challenges filing and used a free online program which was mostly autopopulated because my information hasn't changed much year to year and the whole process took only a few minutes.