Tax Change Impact - Tuition Waivers Taxed!

[Bayesian1701]

I think getting a tax bill to pass in the senate is going to be difficult. Honestly I think there are at least 3 republican senators that could be successfully  persuaded to vote no (not necessarily for this reason but in general) because they do not like the plan. The tax exemption on tuition waivers isn’t cut in the current senate bill.  Hopefully it will stay that way.   My fear would be that the senate would cave on this position in conference (if it even passes the senate) and cut all the education tax benefits. Not in grad school yet, but if this does actually happen it will definitely influence  my decision. I might add a few more lower tuition schools to my application list to be safe.

[davidbowie]

Anyone know when the senate vote will be?

[muskratsam]

They haven't set a date for the vote, but it won't be until after Thanksgiving.  Leadership says they want a vote to the president by the end of the year (and it has to go through conference, too).   They are home to their districts over Thanksgiving (but guessing most won't be doing appearances/town halls -- and not just because it is the holidays).  

[Crucial BBQ]

This current tax overhaul is meant to save the Fed Gov $$$ by not "paying out" money in the form of tax breaks and other incentives and is just another example for why and how monetary systems and economics in general make little sense.  For example, a reason to cut the existing ObamaCare tax (penalty) is that it has been estimated that roughly 13M Americans currently on ObamaCare would leave the program since their would no longer be a tax penalty for not having it in the first place.  Since the Fed Gov would no longer be subsidizing those 13M, it has been estimated to save the Fed Gov just over $300M.  So this change will be made in the hopes of getting people ObamaCare.  Of course, this implies that if say, only 2M people leave, it will not have as powerful of an impact towards the deficit, so it's a gamble.  Another reason for the majority of changes are based on the fact that just under 30% of Americans itemize their deductions.  With that is the reason for other cuts such as the Student Loan Credit, Lifetime Learning Credit, and other current deductions related to higher education.  I have been claiming the Student Loan Credit since 2007 and to be frank, it does not effect my return at all.  I am just one case, YMMV.  The Lifetime Learning Credit has been nice, I must admit, and is one of the reasons why I had even bothered to file two of my returns.  

 

My thoughts on the potential taxing of graduate student tuition wavers:  my guess is that the hopes for its passage are to have an effect similar to that of ObamaCare.  That is, fewer graduate students in Ph.D.  Personally, I don't think this will happen but considering that research conducted by universities is heavily paid for by Fed Gov grants, the logic makes sense. But let's assume that it does pass and becomes Legislation.  For one, when will it go into effect?  With 2018?  With 2021?  If it does pass through, only a handful of new policies would go into effect for 2018 and those will of the easiest to change.  For graduate school programs, a change like this will take time to implement and my guess is that if it does pass it will not go into effect for at least three years but I would not be surprised if universities were given a five-year window.  This will programs time to figure out other ways to fund students in a manner that does not impact their quality of life. 

 

There is also the possibility for individual States to alter their own tax codes and laws to offset any damage done by this current tax plan.  For example, with public universities there may be incentive to offer a State tax deduction/credit to match a new tuition fee waiver tax.  

I'd be surprised if this does not pass the Senate, although it might go into early 2018 before it does.  Honestly, I also wonder if things such as tuition fee waiver taxes and proposed removal of the Student Loan Credit are not in place to entice Dems in the Senate into a bargain. 

[rheya19]

1 hour ago, Crucial BBQ said:

There is also the possibility for individual States to alter their own tax codes and laws to offset any damage done by this current tax plan.  For example, with public universities there may be incentive to offer a State tax deduction/credit to match a new tuition fee waiver tax.  

I'd be surprised if this does not pass the Senate, although it might go into early 2018 before it does.  Honestly, I also wonder if things such as tuition fee waiver taxes and proposed removal of the Student Loan Credit are not in place to entice Dems in the Senate into a bargain. 

At my school (U Iowa) we get tuition scholarships instead of waivers, officially, so we won't be as badly impacted. I was wondering if other schools would follow suit if this passed. Technically, a school might just need to shuffle the money around and call it something else in order for it to be exempt. Fingers-crossed.

[sc9an]

The comment section of this opinion piece from our fellow has some interesting thoughts. https://www.nytimes.com/2017/11/16/opinion/house-tax-bill-graduate-students.html

In the worst case the universities would have to rethink their economic structures, which first pass large bills to its graduate students , then waive  it and create balances on their book journal entry  in order to justify the collection of more national grants. This used to be fine, but possibly not anymore. It is hard to fathom that schools would allow this tax incurred by its own financial architecture to pass through to the students.

But who knows..thinking in this way students are on the passive position all along. Less wonder students have tended to be on the edge of progressive movements...

Edited to put in the article link.

 

Edited November 18, 2017 by schenar

[muskratsam]

I think they expect a lot of the provisions in the bill to take effect for 2018.  And I doubt universities will be able to react that quickly.  If this is in the final bill (and a final bill passes), we could certainly get screwed for 2018.  Not sure what our universities will do eventually to deal with it.

[muskratsam]

I see that someone has started a Facebook event for a walkout of grad students affected by this on Monday, Nov 27 at 1 pm Eastern/(whatever that is local for you) on your campus quad (local time for your campus).  It seems to be getting some traction (people interested).  (Mods, I don't know if this type of link is allowed, please let me know if it needs to be deleted).  It is a public event.  Even if you can't go, see if you can get your friends and family out for this to a nearby campus, even if they aren't near your campus.  The hashtag is #gradtaxwalkout.

https://www.facebook.com/events/300955367071512/ 

 

Edited November 19, 2017 by muskratsam
clarity

[muskratsam]

"For graduate school programs, a change like this will take time to implement and my guess is that if it does pass it will not go into effect for at least three years but I would not be surprised if universities were given a five-year window."

I have no idea why you think this would be true.  Remember that this change is needed to pay for the proposed corporate tax cuts, and any relief given to universities means that payment doesn't start as quickly.  I don't think those in office pushing this care what the impact is on universities -- in fact, many seem to be openly hostile to the higher education system in this country.  I doubt there will be any waiting period.  

 

[Escussel]

1 hour ago, muskratsam said:

I doubt there will be any waiting period.  

 

I agree.  In the education sector, any type of change to funding or taxes takes place immediately upon implementation.  

[WildeThing]

Has anyone contacted any universities they're applying to know what their plans are about this?

[muskratsam]

The date of the Grad Tax Walkout (now joined with the Rally to Save Higher Education ) has been moved to a new date.  Wednesday, Nov 29 at 1 pm Eastern (or whatever local time that is for you).  Here is a place you can sign up to get info about local events at your school.  There is an opportunity to organize for your school if you want to as well.  https://actionnetwork.org/forms/grad-tax-walkoutrally-to-save-higher-education 

Again, moderators, if this isn't allowed, please let me know and I can remove the link.  

[Crucial BBQ]

On 11/18/2017 at 8:05 PM, muskratsam said:

"For graduate school programs, a change like this will take time to implement and my guess is that if it does pass it will not go into effect for at least three years but I would not be surprised if universities were given a five-year window."

I have no idea why you think this would be true.  Remember that this change is needed to pay for the proposed corporate tax cuts, and any relief given to universities means that payment doesn't start as quickly.  I don't think those in office pushing this care what the impact is on universities -- in fact, many seem to be openly hostile to the higher education system in this country.  I doubt there will be any waiting period.  

 

Your doubt is based understandably in the fear of how it may negatively impact you.  As an MS student looking to enter into a PH.D. program in two years, I also have concerns and fears, too.  Of course, I do not know as an absolute but as someone who graduated from a high school before some GradCafe members had yet been born,  I speak from experience.  I am not suggesting that I am smarter, just that I have witnessed how Congress works over a longer period of time is all.  The Republican voting base in large part are those Americans who do not value higher education as much as the Democrat voting base does.  Congressional Republicans know this and they also know that few, if any, Congressional Democrats would support such a proposal.  So its inclusion is a likely bargaining chip more than anything.  Congressional Republicans also know that universities will restructure, providing zero gain in tax revenue from this proposed tax.  But let's say that it does pass, and goes into effect January 1, 2018.  For one, its passage only means that the proposal has been adopted.  The actual language and implementation comes at a later point after the adoption and would not be written by Congress.  Instead, it will be written by the IRS and likely in conjunction with other agencies such as the Department of Education for example.  Once that is complete there is an evaluation process to see if the current implementation is working or if it needs to be amended.  This last phase is where the slow rollout comes into play.  If you send a jarring message to the system expecting change overnight, you can't expect the system to respond positively overnight, either.   An absolute final option exists, too:  elimination of the Congressional adoption if it is shown that implementation cannot work.  

[muskratsam]

I really have to respectfully disagree with this.  The assumptions and savings/costs that are being calculated by the CBO and the House itself assume immediate implementation of these rules.  I also highly doubt that the Republican congress gives a darn about any stress they cause the IRS by requiring these changes to take place in 2018.  Rational and realistic aren't really elements entering into this exercise from what I can tell. 

Per this article, "Most of the provisions would kick in on Jan. 1, 2018."  I've read that elsewhere as well.  I'm not saying this is practical, but I'm saying it is what the current House version of the bill assumes:

https://www.cbsnews.com/news/gop-tax-plan-when-would-it-take-effect/ 

 

 

[muskratsam]

Don't forget, Wednesday (day after tomorrow) is the campus protest event for this tax increase on grad students.  Here is a link to find planned events (so far):  https://actionnetwork.org/event_campaigns/organize-your-local-event-to-save-higher-education-gradtaxwalkout-savegraded?link_id=0&can_id=2ecb2b9ce8ac1b27c9d33547851b15eb&source=email-students-against-the-grad-tax-join-your-local-event&email_referrer=email_267984&email_subject=students-against-the-grad-tax-join-your-local-event  

If your school doesn't show up here, send this link to your graduate student organization, asking whether they can organize an event.

Here is a petition for the Senate you can sign online, too: https://actionnetwork.org/petitions/petition-to-us-senate-to-vote-no-on-2017-tax-bill?link_id=6&can_id=2ecb2b9ce8ac1b27c9d33547851b15eb&source=email-students-against-the-grad-tax-join-your-local-event&email_referrer=email_267984&email_subject=students-against-the-grad-tax-join-your-local-event 

And this is the week to call your Senators (again) and ask them to keep the provision out of their version of the tax bill that would tax tuition waivers, and not let it back in during reconciliation!

 

 

 

 

 

[muskratsam]

This feels like a really dangerous couple of days on this topic.  The Senate is scrambling to find more ways to raise taxes to give more cuts to corporations and get the votes they need.  They could easily add this waiver tax to their version of the bill as a compromise with those holdout Senators, which would also simplify reconciliation for them with the house.  If you live in a state with one or more Republican senators, please call their office on this today.

Also, the LA Times is looking for grad students to share the impact on them of this change:

http://www.latimes.com/business/la-fi-tax-returns-20171127-story.html 

 

Edited November 28, 2017 by muskratsam
Info on LA Times

[Bayesian1701]

Can anyone explain if giving out scholarships instead of waivers is an option in general? Scholarships are still tax exempt if they are used for tuition.  I figure it is too late for universities to do anything with aid packages for the spring 2018 semester, but is it possible that universities give scholarships instead of waivers for future semesters?   Scholarships do have to be merit-based and can't require work, but would scholarships be a viable option?  I found a Forbes Op-Ed that makes it sound like scholarships are an option.  I am still not sure if the bill will pass but I might be overly optimistic.  

[muskratsam]

You could expect that universities that en masse cut over all their grad students from waivers to scholarships might be open to a tax evasion charge.  Plus, how do you make the argument that every grad student deserves equal merit, and also how would the requirement to TA/RA be documented/enforced?   Forbes kind of has an agenda (a pro-business pass-the-tax-bill agenda).

In addition to taxing waivers, the Lifetime Learning credit is going away and nothing is being put in it's place for grad students, so we will take a tax hit there as well.  

If this tax wavier end up in the bill as W-2 income, my state taxes based on W-2 -- so apparently I could face an extra $1,000 in state taxes as well unless there is a change in state law.

[TakeruK]

Although I didn't get the email myself, my friends who are still in my PhD school said that my old school told everyone they would be okay due to some scholarship thing that their lawyers looked into. Nevertheless, I was happy to hear that my friends are still organizing and participating in the walkout tomorrow because 1) nothing is certain about our future and 2) doing it in solidarity for students who will be affected.

3 hours ago, muskratsam said:

Plus, how do you make the argument that every grad student deserves equal merit, and also how would the requirement to TA/RA be documented/enforced?   Forbes kind of has an agenda (a pro-business pass-the-tax-bill agenda).

You don't have to argue that every grad student deserves "equal" merit. You just need to show that "scholarship XYZ has these requirements" and that every single student meets these very minimal requirements. Then, you can easily award a scholarship to every single student. My old school is raising money to put every single grad student on a fellowship (internally funded). So if that plan goes through, it will be similar to a scholarship for everyone.

In addition, my old program already treated every student equally. Every student was paid the same no matter how they ranked on the admissions criteria. Students have tried to negotiate and try to get my program to match offers elsewhere and failed. The department has always been very firm that every student is paid the same. The only exception is when you have an external fellowship that pays more than the offered stipend but right now, the only such fellowship is the GRFP and that only pays a tiny bit more than the standard in my department.

Regarding requirement to TA/RA, here's what my old program did. There is a school-wide requirement to be enrolled in full time credits in order to maintain full time status and funding eligibility. Everyone is pretty much paid on a fellowship so RA was actually credited "coursework". At least in my program, there was very little enforcement needed to do your RA work. No one tracks your hours and ultimately, the profs here have a lot going on that if you screw up and don't do your work, it's not like they were depending on you to complete it. The only person you hurt by not doing work is yourself, so everyone does the work they need to do. There are checkpoints though---you won't pass quals and you won't "pass" your annual committee meetings if your progress isn't satisfactory. I think that's good enough to "enforce" RA work!

For TA work, they just asked us to do it and people signed up for the slots they wanted. We were explicitly told that we were not paid for TAships and that they were part of our education. They are not formally written into program requirements but I think if it ever became a problem that people didn't do TA work, then it probably would be. However in the decades that they have been doing this, it seems to have never come up as a problem. In addition, if you do poorly in one section of quals, you are often asked to TA that course in order to beef up your understanding. 

In our department there was way more students than there are TA slots. So typically, first years are not asked to TA. TA slots are filled by asking 2nd, 3rd and 4th years first. If there are any 5th years that want to TA and there are still slots left over, they can TA. Most people choose to focus on their dissertation in their 5th year. The typical TA load is 10 hours per week for 10 weeks per year. So it's not very much. However, some courses have field trips that are a week long or weekend long. Most classes have fewer than 10 students and they are mostly all grad classes, but there are a few giant undergrad classes. The field trips and big undergrad classes are more work but there always seems to be enough people that want to do that work so people who want to do a lot of TA work get to do that and people who don't can avoid it. Most TAships can be very minimal work if you just grade, but if you want to do more (as I did), you can ask to teach lectures etc.

Ultimately, I have mixed feelings about this system. On one hand, it works amazingly well and fits with the culture of our department very well. Practically, it's reassuring that you don't have to "compete" for a TA spot in order to get your funding. You get the full funding no matter what. In addition, since this is not employment at all, it's not taxable in the eyes of the Canada Revenue Agency, which made my taxes much better. On the other hand, being from Canada where most students are unionized, it seemed very weird to be doing work for free. Also this arrangements makes it very hard to unionize later. And if you happen to be a naive grad student that says yes to everything, you can get screwed over by over-committing and not getting anything out of it. Ideally, your advisor is supposed to protect you though. 

All this is not to say that every school should work this way. I'm just pointing out that you don't need funding held hostage by TA or RA assignments in order to get the work done. There are other good systems too.

[muskratsam]

Thanks for the info.  I'm not saying there aren't ideas for how to do it -- I'm saying that the government may well (especially given the current attitude toward universities & higher education) choose to crack down on colleges that immediately change their funding/waiver approach.  I would not count on that -- best if the current explicit tax exemption can just be left in place. 

[TakeruK]

4 minutes ago, muskratsam said:

Thanks for the info.  I'm not saying there aren't ideas for how to do it -- I'm saying that the government may well (especially given the current attitude toward universities & higher education) choose to crack down on colleges that immediately change their funding/waiver approach.  I would not count on that -- best if the current explicit tax exemption can just be left in place. 

Yeah, definitely agree that no one should count on schools changing for us and that it's definitely best if the exemption remains in the final tax bill (or honestly, I wish that the tax bills fails completely, I'm not a fan of it at all but I'm not a voter nor a US taxpayer after this tax year so I guess it doesn't really matter what I think lol).

[muskratsam]

Hear, hear!   I'm all for failure of the whole thing as well.  But it is looking pretty ominous right now.

[muskratsam]

It is frustrating that not ONE Republican Senator seems to have made a statement standing up for higher education.  You'd think that something the US leads the world in is something they would want to preserve.  17 of the top 25 ranked universities in the world are in the US and rely on this system of TAs & RAs to support research and help educate undergraduates.  

The bill continues to roll forward, with amendments being offered in the Senate tomorrow, and a vote as early as tomorrow night.  Then the bill will go to reconciliation (unless the House decides to accept the Senate version, which at this moment does not appear to tax tuition waivers, but that could change at any time, and no one has the full text of the bill at the moment).  After reconciliation it has to be voted on again by both chambers, then goes to the president for signature.

[muskratsam]

Here is a calculator some grad students put together.  If you dig into the details and links in the calculator, it is pretty useful to see the possible impact.  

https://docs.google.com/spreadsheets/d/1qmh7E0y9B8xDfHP2ovxSHhnUVFVYwoO9OK33iHShtCo/edit#gid=0  

One thing I wasn't aware of before is that depending on how your university provides health insurance, your taxes apparently could go up on that as well.  If some or all of the cost is considered part & parcel of your tuition waiver, you aren't current taxed on that extra cost.  But if it is outside that, I guess we already pay tax (I'm a first year, haven't seen a W-2 yet, so am not certain).  So that could be another tax increase for some students.  MIT is the example where there would be an increase for the health insurance.

No one really knows what is in the bill that they are voting on at this moment.  I haven't heard that the tuition waiver tax made it into the Senate version, but can't be sure.  And reconciliation could still add it in.

 

[lordtiandao]

If the Republicans wants to deliver Trump a "win" before the end of the year, then the easiest thing to do is to just have the House vote and pass the Senate version of the bill. Otherwise, Reconciliation is going to be such a shitshow....