Tax Change Impact - Tuition Waivers Taxed!

[muskratsam]

Good work, everyone who called, protested, and contacted Senators and reps in various ways.  It does make a difference!  Keep it up, the bill is not final yet!

Be sure your union is also aware of the loss of the Lifetime Learning tax credit if that is lost in the bill.  Right now we can take a credit (direct reduction of the amount of tax owed) of 20% of the fees we pay the university -- that credit goes away in the House version, and could in the final version as well.  The only credit left will just be for undergrads.

Edited December 9, 2017 by muskratsam

[muskratsam]

Reconciliation meetings are in process, and today could be a big day for decisions.  It would be a good day to call again to your representative and senators, even if you have already done so in the past.  This topic is getting a lot of discussion in DC right now, so let's make sure they know that we care about this.

[Yanaka]

I got an answer from a PA senator, and he seems to be saying that that part of the tax bill does not concern all grad students. Here is a copy/paste of what he said:

"Specific to your concerns, both the bills passed by the House of Representatives and the Senate impose a 1.4 percent excise tax on the investment income of college endowments. To qualify for the tax, a college must be a private institution, have 500 students, and meet a certain endowment per student threshold. In the House bill, the endowment per student threshold is $250,000, while in the Senate bill it is $500,000. Under the Senate bill's threshold, approximately 30 to 40 private colleges with massive endowments nationwide would be subject to this excise tax."

 

Thoughts?

[Bayesian1701]

1 hour ago, Yanaka said:

I got an answer from a PA senator, and he seems to be saying that that part of the tax bill does not concern all grad students. Here is a copy/paste of what he said:

"Specific to your concerns, both the bills passed by the House of Representatives and the Senate impose a 1.4 percent excise tax on the investment income of college endowments. To qualify for the tax, a college must be a private institution, have 500 students, and meet a certain endowment per student threshold. In the House bill, the endowment per student threshold is $250,000, while in the Senate bill it is $500,000. Under the Senate bill's threshold, approximately 30 to 40 private colleges with massive endowments nationwide would be subject to this excise tax."

 

Thoughts?

That is correct, but taxed tuition waivers were in the house version.  The endowment tax is separate from the taxed tuition waivers. If your university is a very rich private institution then it’s endowment might be taxed, but tuition waivers from all universities would be taxed under the house bill.  If taxes tuition waivers pass will likely affect you especially if you are a grad student right now (I don’t think universities have the time to change spring 2018 packages). Scholarships are an option for universities (according to this)  but they have to be competitive and can’t require work (you can work on a scholarship though). It will take universities some time to respond to the final bill.  It is possible that taxed tuition waivers will be included in the final bill. The endowment tax  and the cuts to education credits (house bill only) are also issues that will affect higher education, but they are separate parts of the bill(s).  

Edited December 13, 2017 by Bayesian1701

[Glasperlenspieler]

The Republicans have a joint tax bill: https://www.nytimes.com/2017/12/13/us/politics/tax-bill-republicans-deal.html?_r=0

No word yet on the status of tuition waivers.

[Bayesian1701]

2 hours ago, Glasperlenspieler said:

The Republicans have a joint tax bill: https://www.nytimes.com/2017/12/13/us/politics/tax-bill-republicans-deal.html?_r=0

No word yet on the status of tuition waivers.

Just read this which says tuition waivers aren't taxed under the bill.  This is developing and I am curious about what the verdict is on the endowment tax and the lifetime learning credit.  I hope that this is true but not believing it until the final passed bill doesn't tax waivers.

[TakeruK]

Good to hear that tuition waiver taxes may not happen. But I hope US grad students who oppose other parts of this tax bill continue fighting against it! I won't comment further since most of the other changes aren't on topic for this thread (although things like repealing individual mandate may make insurance unaffordable for students on modest stipends) and I'm not a US voter so it's not my business anyways. Just a general statement that I hope people don't fall into a trap of being "placated" if only one (or a few) of many concerns are addressed. Otherwise, it would be quite easy for lawmakers to throw in attacks on certain types of voters (e.g. students) then take them out as a fake "compromise" in order to get their other agenda passed.

[lordtiandao]

Definitely good that tuition waivers won't get taxed. The rest of the bill is still a disaster though.

[muskratsam]

The Lifetime Learning credit is also apparently intact in the current bill.  It is still not a good bill, and I hope somehow it doesn't pass, but some of the most direct hits at grad students have been avoided.  

[Carly Rae Jepsen]

I'm so relieved those awful changes were done with. Now while I may be able to attend graduate school, the economy will probably be in shambles when I graduate, so...

[Bayesian1701]

The bill was signed today and became official.  Lifetime learning credit is kept and tuition waivers are not taxed.  

[ClassicsCandidate]

7 hours ago, Bayesian1701 said:

The bill was signed today and became official.  Lifetime learning credit is kept and tuition waivers are not taxed.  

It's good to hear that the Lifetime Learning credit was kept and there was no tax on the tuition waivers; these are two things I was worried about since I'm applying to my MA for Fall. A slight relief, at least.

[Crucial BBQ]

The Lifetime Learning Credit only applies to tax you owe to the IRS, up to $2,000, and of itself is not a deduction.  What is a deduction is to itemize tuition paid and which may increase your refund amount.   You can only either take the LLC credit or the itemized tuition deduction, not both. I've always chosen to itemize.  So what's really baffling is that it was in the Bill to remove the LLC and then to tax tuition waivers.  

Honestly, I can see the topic of taxing tuition fee waivers make a comeback shortly after the 2018 mid-term elections with Congressional Republicans. 

[muskratsam]

My tuition is waived, so isn't an itemized deduction (I think it isn't, this is my first year, so am not positive).  I am under the impression that my waived tuition is considered a qualified tuition reduction.  So I don't have to include it in income at all.  I don't see how that has anything to do with itemizing.  So I think I do get to take the LLC for 20% of the fees I pay my university AND have a tuition waiver that isn't taxed.  Am I missing something?

I don't see this coming back around again soon.  I think there was a fair amount of behind the scenes maneuvering to KEEP this from happening.   My take is that there are a fair number of Republican reps and senators who know how shortsighted this is.  They may not want to shout it from the rooftops given the anti-education stance of some of their constituents.  But they know it is a bad idea.  Even in the house, there were a bunch of Republicans who did speak up on it eventually.

 

[Crucial BBQ]

On 12/28/2017 at 1:54 AM, muskratsam said:

My tuition is waived, so isn't an itemized deduction (I think it isn't, this is my first year, so am not positive).  I am under the impression that my waived tuition is considered a qualified tuition reduction.  So I don't have to include it in income at all.  I don't see how that has anything to do with itemizing.  So I think I do get to take the LLC for 20% of the fees I pay my university AND have a tuition waiver that isn't taxed.  Am I missing something?

I don't see this coming back around again soon.  I think there was a fair amount of behind the scenes maneuvering to KEEP this from happening.   My take is that there are a fair number of Republican reps and senators who know how shortsighted this is.  They may not want to shout it from the rooftops given the anti-education stance of some of their constituents.  But they know it is a bad idea.  Even in the house, there were a bunch of Republicans who did speak up on it eventually.

 

Under IRS tax law, it's a reduction if you currently work as a TA, RA, or something similar.  Otherwise, your tuition waiver is taxable. This is nothing new.  

I've never had a fee reduction or tuition waiver, so I dunno what Box 1 of the 1098-T looks like for those who receive tuition waivers.  If there is a dollar amount in Box 1 then I imagine you could take the LLC on that amount but unless you owe the IRS money I don't know why you would want to do so as the LLC is not a refund.  Itemizing may make more sense however sometimes it won't change what you owe or the amount of your refund if you are to get one.  I am not a tax expert, so please don't take my advice as is.  I imagine you are also getting a stipend.  How are withholdings handled?   If not enough taxes are withheld from your stipend and the IRS says that you still owe $X.XX in taxes, then yes in the case taking the LLC would make sense.  

When a grad student receives a tuition fee waiver and they do not work as a TA or RA they are legally required to pay tax on that tuition as it is treated as a recurring gift. Or something like that.  Yet, if the grad student does work as TA or RA they are exempt.  More or less this scenario is treated like your employer is paying for you because that is what is happening for the most part.  But, what exactly is the status of the student?  Meaning, is the student an employee or not?  And if employee, who's the employer?  The PI/lab?  The Department?  The university?  The State If at a State university?  Are grad students sub-contractors?  Temp employees?  If a grad student is an employee of the Department, why should the PI/lab fund them?  

My point is that with Congressional Republicans the idea is to change the status of stipend from 'covered by employer' to being compensation received from work done making the waiver a part of your pay.  

Personally, I think the issue got dropped because of upcoming mid-term elections.  I don't think that it is a coincidence that reporters focused on grad students at Ivy League schools as these schools likely have higher than average Conservative/Republican grad students.   I also have a feeling that the IRS voiced concerns over the difficulty of writing the policy here because as mentioned above they would have to redefine the status of grad student.   Congress only pass the Bills, the IRS and others are then tasked with actually creating the policy.   Look into the monumental task that the IRS is now faced with.  

[muskratsam]

"My point is that with Congressional Republicans the idea is to change the status of stipend from 'covered by employer' to being compensation received from work done making the waiver a part of your pay."

Yes, that was the entire point of this thread.

I do work as a TA, so my waiver is not taxable income under current (or under the new tax law).  I don't itemize -- I don't have enough deductions to make it worthwhile (the current and future standard deductions are a better deal for me).  The LLC is a straight 20% tax credit.  I think I can take that on the fees I pay to my university (something like $1200 in fees per year, so 20% of that). A tax credit changes the amount that you owe in tax, regardless of what was withheld.  Let's say the exact right amount was withheld from my stipend -- then I should get back the amount of the LLC credit in refund.  Withholding is a convenience -- I still have to file a return anyway, and THAT is how my exact tax owed is calculated.  They expect you to withhold or pay estimated taxes within a reasonable amount of what is owed.  But the return is the final word on it.  So why wouldn't I take the LLC on my university fees, and reduce my overall tax bill?

I think you are off base about why reporters focused on Ivy League grad students.  It has nothing to do with their political bent (in fact, I'm not sure you are right about that leaning even).  If they did focus on Ivy League students in their reporting it is because the dollar impact was most dramatic there.  Tuition is higher at a private research university -- so if the waiver is for more money, then then resulting tax bill increase in actual dollars is bigger.  Hence a better story.  $40K of an income bump via taxing tuition sounds a lot more dramatic than taxing $20K at a state university.  I think lawmakers changed their mind for a few reasons:

- The Senate is slightly more mature and sane than the House (I realize the bar is low, but so be it).  Senators are a bit less inclined to gut higher education, and they probably couldn't get the votes in the Senate.  It was a non-starter with some Republican Senators, even though they weren't vocal to the press about it.

- State universities in Republican states were hit just as hard by the tuition waiver tax than in states more like to vote Democratic.  All those universities rely heavily on TAs for teaching and research support in their university system.  I think House and Senate members in ALL states heard from grad students that this was a bad idea.  Speaking up does change votes.

I also think that it is laughable to think that they had time to consult the IRS on what could and couldn't be easily turned into policy, including on the tuition waiver.  None of this was vetted much, if at all, by the IRS.  The negotiators were scribbling by hand in the margins at midnight -- not holding meetings with the IRS for a rational discussion of what could and couldn't be done.  As will be evidenced in the chaos this law will cause in 2018 and 2019.  Already happening with homeowners trying to figure out if they can pre-pay property taxes, and the IRS attempts to provide clarification.  The implementation of what they did pass is going to make the Affordable Care Act look smooth as velvet.

 

 

 

[Crucial BBQ]

On 12/30/2017 at 9:01 PM, muskratsam said:

"My point is that with Congressional Republicans the idea is to change the status of stipend from 'covered by employer' to being compensation received from work done making the waiver a part of your pay."

Yes, that was the entire point of this thread.

I do work as a TA, so my waiver is not taxable income under current (or under the new tax law).  I don't itemize -- I don't have enough deductions to make it worthwhile (the current and future standard deductions are a better deal for me).  The LLC is a straight 20% tax credit.  I think I can take that on the fees I pay to my university (something like $1200 in fees per year, so 20% of that). A tax credit changes the amount that you owe in tax, regardless of what was withheld.  Let's say the exact right amount was withheld from my stipend -- then I should get back the amount of the LLC credit in refund.  Withholding is a convenience -- I still have to file a return anyway, and THAT is how my exact tax owed is calculated.  They expect you to withhold or pay estimated taxes within a reasonable amount of what is owed.  But the return is the final word on it.  So why wouldn't I take the LLC on my university fees, and reduce my overall tax bill?

I think you are off base about why reporters focused on Ivy League grad students.  It has nothing to do with their political bent (in fact, I'm not sure you are right about that leaning even).  If they did focus on Ivy League students in their reporting it is because the dollar impact was most dramatic there.  Tuition is higher at a private research university -- so if the waiver is for more money, then then resulting tax bill increase in actual dollars is bigger.  Hence a better story.  $40K of an income bump via taxing tuition sounds a lot more dramatic than taxing $20K at a state university.  I think lawmakers changed their mind for a few reasons:

- The Senate is slightly more mature and sane than the House (I realize the bar is low, but so be it).  Senators are a bit less inclined to gut higher education, and they probably couldn't get the votes in the Senate.  It was a non-starter with some Republican Senators, even though they weren't vocal to the press about it.

- State universities in Republican states were hit just as hard by the tuition waiver tax than in states more like to vote Democratic.  All those universities rely heavily on TAs for teaching and research support in their university system.  I think House and Senate members in ALL states heard from grad students that this was a bad idea.  Speaking up does change votes.

I also think that it is laughable to think that they had time to consult the IRS on what could and couldn't be easily turned into policy, including on the tuition waiver.  None of this was vetted much, if at all, by the IRS.  The negotiators were scribbling by hand in the margins at midnight -- not holding meetings with the IRS for a rational discussion of what could and couldn't be done.  As will be evidenced in the chaos this law will cause in 2018 and 2019.  Already happening with homeowners trying to figure out if they can pre-pay property taxes, and the IRS attempts to provide clarification.  The implementation of what they did pass is going to make the Affordable Care Act look smooth as velvet.

 

 

 

Do you not think it's odd that one group is different?  Perhaps there are reasonings behind it I am not aware of, however to me it certainly seems strange that the group that works is also the group that is tax exempt.  The other group may still receive a non-service stipend, which is treated as financial aid and not taxed outright yet taxes are still owed.  If the working group's stipend is through payroll and taxed, then would it not be more fair to simply tax the non-exempt group on their stipends only?  You know, I have no idea why the House brought this to the table.  My original assessment was that it was nothing more than a bargaining chip meant to be cut and left on the floor yet at least one Representative thought of it and thought its inclusion into the Bill important.  But what was that?  I personally don't think this topic is dead and time will tell. 

The LLC only applies to the first $10K of educational expenses, so it maxes out at $2K even if educational expenses are, say, $150K.  For a parent who is paying tuition for three college goers the $2K max still applies even with all three tuitions combined.  The LLC can only be used to pay taxes that you owe and only up to your liability reaching $0.  So if you are eligible for a $2K LLC and you owe $1K in taxes your tax liability goes to $0 and you do not receive a refund.  If adequate amounts of taxes are removed by payroll from your stipend and you are going to receive a refund then the LLC does not apply as you cannot use it to get a refund on top of your refund.  Yes, it's a credit but here you can see how itemizing educational expenses may be more beneficial.  For grad students that means it's a credit to help those who do not receive tax-exempt tuition waivers and who receive stipends as financial aid.  It's for those who receive other forms of taxable financial aid.  It's for parents who are contract workers and pay their taxes at the end when they are owed.  It's for those who adjust their exemptions in such a way to specifically avoid over-paying and thus usually owe in the end, too.  And so on.  Bottom line is that you cannot use LLC to get a refund.  

About your last comment, I listen to NPR.  My comment came from a recent guest on one of the programs I listen to who happened to be the former Head of the IRS, Koskinen, and who recently had retired from this position.  What I wrote is what he said happens: that members of the IRS will sit in on those Congressional meetings and offer their suggestions only.  According to Koskinen, this is largely just the IRS alerting Congress to what is feasible or not in terms of numbers of IRS employees and [lack of] budget to do so.   He was quick to point out that the IRS does not give input into what Bills should pass or not and I didn't write that Congress consulted with the IRS, only that the IRS likely voiced concerns to Congress.  What led up to the final passing of the Tax Cuts and Jobs Act goes back to at least June of 2017 with Senator Hatch putting out the call for proposals on tax reform.  But yes, since at least November 2017 it was a very shady ordeal. 

About my Ivy slant:  you are welcomed to contest what I wrote but consider this:  what do you think public opinion of the Ivies may be in general?  Favorable?   The Ivy League did not give us preppy culture, New England WASPs did.  Most Americans still associate the Ivies with that Old Money and it's hard to gain the public's sympathy from that.   To be frank, I don't know the extent of this coverage.  From my perspective as someone who lives near Washington it certainly not only seams the case around here but also the angle that is most plausible to influence Washington opinion. 

About State universities in Red States:  which do you think gets more public support (and sympathy)?  Graduate studies at these universities or college football at these universities?  

Edited January 3, 2018 by Crucial BBQ
to include *taxes are still owed*

[muskratsam]

The reason they've given the TA and RAs a tax exemption (and not others with waivers) is because they make universities and our research structure run.  That is important to the universities and grant giving-organizations, so that is how it came about to start with.

Yes, of course the LLC credit could be bigger than the overall tax bill, and then the student doesn't get that extra money.  But that is not the same as WITHHELD.  I expect I will owe federal tax in 2017, the LLC will reduce that tax owed by a couple hundred dollars (fees to my university), and I won't have nearly enough deductions to itemize.  All will still be true in 2018.  And YES, you can use the money to get a refund.  

Here is what I'm trying to say: It doesn't matter what was withheld from my paycheck.  When I file my return with income, deductions (if I could itemize), etc., THAT is when the tax due is calculated.  The withholding is merely a convenience (although if I under-withhold, I could pay a penalty).  I could withhold on the nose, but it is my return that shows if I had a tax bill for the year  (maybe already paid via withholding, but that is just accounting).  I still have to file a return, and would get that couple hundred dollars in a refund due to the LLC, assuming my total tax owed for the year (regardless of withholding) was more than the LLC credit amount.  So say I withhold $1000, and my tax bill is exactly $1000.  But when I file, I claim the LLC on $1200 in university fees.  Then I would get a $240 refund from the IRS.   You are mixing up withholding (which is just essentially collecting some of the tax, but not calculating what you owe) and the actual tax owed (what your tax return shows).  

I listen to NPR as well, and grew up with a tax attorney who worked for gov't as my dad.  It takes time to engage the IRS and other agencies who have to execute these types of rules to give considered input.  I'd agree that maybe in the beginning of the process they had IRS input on a lot of it.  But those last couple weeks of negotiations and middle of the night changes, no way did the experts have time to dig down on all the last minute changes.  Which will likely result in an interesting 2018, to say the least.

I'm a grad student at a state university in a red state, so I get it to an extent.  But state residents still want their kids to be able to attend the state university, and have TAs to support the classrooms there.  And your Ivy argument is confusing to me.  The media (1) generally did not favor the tax bill, (2) doesn't want to antagonize readers and KNOWS that the Ivy League is kind of a poisonous example these days.  But that is where the most waived tuition money is, so that is where the best story was.  They'd rather have picked a state university, but it made a better dollars/cents story to pick an Ivy League.  I noticed MIT cropping up in several stories -- I wondered if that was maybe a more palatable school to the public than an Ivy these days, but it still fits the model they wanted of an alarmingly large tax increase for a grad student.

[Crucial BBQ]

22 hours ago, muskratsam said:

The reason they've given the TA and RAs a tax exemption (and not others with waivers) is because they make universities and our research structure run.  That is important to the universities and grant giving-organizations, so that is how it came about to start with.

Yes, of course the LLC credit could be bigger than the overall tax bill, and then the student doesn't get that extra money.  But that is not the same as WITHHELD.  I expect I will owe federal tax in 2017, the LLC will reduce that tax owed by a couple hundred dollars (fees to my university), and I won't have nearly enough deductions to itemize.  All will still be true in 2018.  And YES, you can use the money to get a refund.  

Here is what I'm trying to say: It doesn't matter what was withheld from my paycheck.  When I file my return with income, deductions (if I could itemize), etc., THAT is when the tax due is calculated.  The withholding is merely a convenience (although if I under-withhold, I could pay a penalty).  I could withhold on the nose, but it is my return that shows if I had a tax bill for the year  (maybe already paid via withholding, but that is just accounting).  I still have to file a return, and would get that couple hundred dollars in a refund due to the LLC, assuming my total tax owed for the year (regardless of withholding) was more than the LLC credit amount.  So say I withhold $1000, and my tax bill is exactly $1000.  But when I file, I claim the LLC on $1200 in university fees.  Then I would get a $240 refund from the IRS.   You are mixing up withholding (which is just essentially collecting some of the tax, but not calculating what you owe) and the actual tax owed (what your tax return shows).  

I listen to NPR as well, and grew up with a tax attorney who worked for gov't as my dad.  It takes time to engage the IRS and other agencies who have to execute these types of rules to give considered input.  I'd agree that maybe in the beginning of the process they had IRS input on a lot of it.  But those last couple weeks of negotiations and middle of the night changes, no way did the experts have time to dig down on all the last minute changes.  Which will likely result in an interesting 2018, to say the least.

I'm a grad student at a state university in a red state, so I get it to an extent.  But state residents still want their kids to be able to attend the state university, and have TAs to support the classrooms there.  And your Ivy argument is confusing to me.  The media (1) generally did not favor the tax bill, (2) doesn't want to antagonize readers and KNOWS that the Ivy League is kind of a poisonous example these days.  But that is where the most waived tuition money is, so that is where the best story was.  They'd rather have picked a state university, but it made a better dollars/cents story to pick an Ivy League.  I noticed MIT cropping up in several stories -- I wondered if that was maybe a more palatable school to the public than an Ivy these days, but it still fits the model they wanted of an alarmingly large tax increase for a grad student.

Well, looks like I'm eating crow.  

In playing around with an online tax-filing service to estimate what my return might be it recommended to me I take the LLC, stating the LLC would offer the largest refund or liability reduction.  I then looked over last year's return (different platform) and although I was itemizing my educational expenses as deductions the tax software I used for last year's return is showing that I was given the LLC instead of the deduction.  In looking over the entire return it does show that the LLC did credit the taxes I had paid through withholdings back to $0 and then did return those previously withheld taxes back to me as a refund.  So, you are correct. 

The IRS states that the LLC is non-refundable and only credits taxes owed.  I didn't think that "owed" would mean "already paid for through withholdings".  In 2015 I also itemized educational deductions and distinctly remember that it was the better option that year than taking credits.  So I was only going by what I know and have previously experienced. Live and learn, I suppose, but you could've mentioned your relatedness to a tax attorney earlier on.  I myself am only related to the blue-collar and can read a car repair manual with ease yet these tax codes look like gibberish to me.  

I stand by other topics I have posted. 

 

[muskratsam]

Sorry, didn't think Dad was relevant until that post.  Although I think most people who have paid taxes more than a few times know that the withholding is just a guess, and then it just gets "trued up" with what you really owe when you do a return.  Main point of all this is that those of us with TA/RA tuition waivers get to avoid reporting them as income for 2018, and we can still take the LLC.    We can certainly revive this thread or start a new one if they go after those benefits again in the future!