postdoc and grad student taxes

January 25, 2011 at 8:32 pm | | grad life, postdoc life

Before I say anything, I have to clarify that I am not a tax expert. Don’t listen to anything I say. If you prefer TurboTax advice, read this link instead.

OK, taxes for grad students and postdocs can be complicated, especially dealing with fellowship stipends and tuition reimbursements.

Tuition and the 1098-T

The way Stanford sends 1098-T forms is via some really sketchy website 1098t.com, run by Affiliated Computer Services. They send the most spammy looking emails I’ve ever seen:

But it’s not spam. The 1098-T is basically worthless for grad students whose tuition is paid for by their PI or their department. In those cases, the students can’t claim the tuition on their taxes, because they didn’t actually pay it. In general, the “Amounts billed for qualified tuition and related expenses” box should have a very similar number as “Scholarships or grants”, but they may be significantly different if the department ends up paying your tuition in a different year than it’s billed. If you just input those incorrect boxes into your favorite tax software, it will calculate that you have a tax burden or deduction. That’s not correct. (Of course, those should cancel out over your entire grad career, because the department’s payments made on the prior year’s bill will eventually catch up. But it’s simpler to just report what actually happens, not what the 1098-T thinks is happening.)

I think the best thing to do is ignore the 1098-T. Instead, add up all the bills you get from the university that year, and add up all the payments to the university from your department, and report the difference that you actually paid. The difference should be what you actually paid: the fees billed directly to you and not reimbursed by the department. [Edit: Only required fees are eligible for a deduction.] This will be a small number, and probably won’t affect your taxes. Keep those documents in case the IRS comes calling!

[Edit: Of course, you must also report your stipend as income on your 1040 as a taxable scholarship.]

The most risky thing to do is claim that you paid tuition that you actually didn’t. I suspect that annoys the IRS. (Of course, this will be different for grad students who actually pay tuition. The Hope or Lifetime Learning credits are designed for those folks.)

Is a Fellowship Self-Employment?

Generally, the answer is no. And that’s a good thing, because you have to pay a 13.3% self-employment tax if you are self employed. Postdocs and grad students on fellowships may not be “employed” by their university, but they are not exactly self-employed, either. The way it’s been worked out, students and postdocs on fellowship generally pay their own income taxes (the university doesn’t take out taxes from their paycheck) in estimated taxes, but don’t pay the extra self-employment tax.

Do Postdocs Pay Social Security Taxes?

This question is more complicated. Students don’t have Social Security taxes (officially called FICA) withheld from their paychecks. But are postdocs “students” in the eyes of the IRS? Currently, they are. Universities usually don’t withhold FICA from postdocs’ paychecks. (Sometime, grad students have FICA withheld during summers, usually if they aren’t charged tuition and are paid as employees for the summer.)

There is some disagreement around this, and the IRS may start asking for Social Security payments from universities and postdocs. For instance, medical residents just lost a case against the IRS; now they have to pay Social Security taxes. It makes me wonder if postdocs will be next.

More Details

http://www.nationalpostdoc.org/postdocs/187-overview-of-tax-issues-for-postdocs

https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Forms/Guide-to-Tax-Form-1098-T–Tuition-Statement/INF22534.html

13 Comments »

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  1. The social security issue is sometimes a little more complicated. During some of the later summers of grad school, I did have FICA withholdings because I wasn’t registered as a student or something like that. I think it worked out that the tuition, which there was otherwise no reason to pay, would have been more than the withholdings for those two months… or something like that. I’ve forgotten the details.

    Also, it’s not quite as simple as “Universities don’t withhold FICA from postdocs’ paychecks.” My university did withhold FICA when I was a postdoc.

    Comment by MRW — January 27, 2011 #

  2. This post is stressing me out, Sam.

    Comment by Mike — January 27, 2011 #

  3. MRW, the sources I cited claim that universities shouldn’t withhold FICA for postdocs. But I agree that it’s complicated. I’ll add an update to mention that FICA for grad students is sometimes withheld during summers.

    Comment by sam — January 27, 2011 #

  4. Mike: just watch a few episodes of Frasier. Now that’ll stress you out!

    Comment by sam — January 27, 2011 #

  5. When I was a grad student and then a postdoc, there were many situations where the University or the Government might plausibly classify me as either a student or as an employee. About 80% of the time, the answer turned out to be whichever was in this case less advantageous to me.

    Comment by Matt H — February 1, 2011 #

  6. FYI, for foreign nationals, after 5 years of residence in the US, the Universities can in principle withhold SS taxes. As for postdocs, in my university, they withhold SS taxes since I started working there.

    Comment by RVA — February 19, 2011 #

  7. You get back much more money if you do deduct the third party tuition paid… and there is no point in paying SS if it is going to run out before we are old enough to collect.

    Comment by Allen — January 29, 2013 #

  8. Allen, you can also get more money back if you claim you donated $40,000 to charity. I’m pretty sure the IRS frowns on lying. :)

    Comment by sam — February 1, 2013 #

  9. Great post! Concise and great linking to your sources. I’ve been working on a tax document for grad students at my university as well as writing some posts on grad student taxes for my blog. I’m trying to figure out if there is ANY legitimate situation wherein a grad student or postdoc would be self-employed/receive 1099-MISC Box 7 income from her university. I’ve heard of students mistakenly being issued Box 7 income but never legitimately. Any thoughts?

    Comment by Emily @ evolvingPF — February 19, 2013 #

  10. Hi,

    I have actually just received a 1099-MISC, box 7, for a graduate fellowship: dissertation completion fellowship and struggling to figure out how to declare it. My brain has literally fried! Am I really an independent contractor?

    The thing is that I am being paid by the Council for European Studies at Columbia, which is not my home university. I did not know they consider my writing of the dissertation a service performed for CES. Nor did I know I am engaged in trade for profit (I wish!)

    I have two questions if you could help:
    – is there any publication I can read to find out if I could be considered self-employed, file with scehdule C and pay 15% of my fellowship?
    – should I report income in line 21 of 1040 as “other income” and specify “fellowship 1099Misc not subject to self-employment tax”?

    What do you guys think?

    Comment by Diana — March 9, 2014 #

  11. see the section “Is a Fellowship Self-Employment?” above. if those links don’t answer your question, i think you’ll need to hire an accountant.

    Comment by sam — March 20, 2014 #

  12. Excellent article – I am thankful for the facts ! Does someone know if my company might access a blank IRS 1098-T copy to edit ?

    Comment by michelle kolbe — March 23, 2016 #

  13. Hi Michelle , my friend filled in a fillable IRS 1098-T version here http://goo.gl/OeJ2u2

    Comment by Noriko Metcalfe — March 24, 2016 #

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