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Posted by maud.july on March 28, 2008, 11:13 pm
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Hello,
I would appreciate any advice you can give on the following tuition
tax issue.
I am a graduate student at a major public US research institution
where I am employed as a teaching assistant for 9 months a year with a
salary of about $15k. In addition to my salary I receive "tuition
assistance" totaling about $3k per semester, which offsets the cost of
tuition. In addition to my position as a TA I hold an outside job
that brings my AGI to over $55k a year.
My university has included the "tuition assistance" payments as
taxable income on my W-2. Assuming a 27% marginal rate this will
result in about $1,600 in taxes. However on reviewing IRS publication
970 ("Tax Benefits for Education") and the relevant section of the US
tax code (section 117) I found that a reduction in tuition for
graduate student is not taxable assuming:
1) It is provided by an eligible educational institution.
2) You are a graduate student who performs teaching or research
activities for the educational institution.
Both of these apply to my situation, so I contacted our payroll office
and inquired as to why my tuition assistance didn't qualify. The
payroll office pointed me to Section 117(c)(1) of the US tax code
which states the provisions that would exempt the tuition assistance:
"shall not apply to that portion of any amount received which
represents payment for teaching, research, or other services by the
student required as a condition for receiving the qualified
scholarship or qualified tuition reduction."
the payroll office went on to point out that the university considers
tuition assistance taxable income and pointed me to a university
policy that states that tuition assistance shall be considered taxable
income.
Next I called the IRS's help line to try to get a clear criteria for
determining when tuition assistance is payment for teaching, and when
it isn't. For the most part all they did was read to me the same
vague sections of the publications that I had already read.
This brings me to my first question, what is the determining criteria
for a tuition reduction to be consider compensation? The university
appears to think that simply declaring it compensation in a university
policy is sufficient. However I would think that this should be fine
legal point based on the specific structure of the program. Is there
any ground on which I can contest this classification?
In view of all of this, I was curious, as I'm sure you are, why the
university would go out of its way to make sure the program didn't
qualify for the tax free status of a "tuition reduction" program.
After more poking around, I was forward a two year old memo written by
a member of the accounting faculty. This document compared the impact
to students in various financial situations of calling the "tuition
reduction" (and thus being tax free to the students) versus calling
the program compensation (which enables the student, in certain
circumstances, to take take the lifetime learning credit on the
tuition payment).
Since the lifetime learning credit is a _tax credit_ and tuition
reduction is an exclusion the tax impact depends on your more general
financial situation. Since my AGI is over $55k I do not qualify for
the lifetime learning credit, and thus am stuck with a $1,600 tax bill
that I wouldn't have if the program was classified as "tuition
reduction". Similarly certain foreign students are ineligible for the
lifetime learning credit, which disqualifies other students.
Alternatively, if a student has no outside income then the tax credit
seems to have about a $800 advantage. This all said one might think
that the university should just give the student the option of which
one to take. However, according to the memo, if the university gives
an employee the option of whether to consider the payment tuition
reduction, it's tax free status is immediately disqualified.
With this in mind, my questions are as follows:
(1) is there a way the university could structure this program to
(more) uniformly advantage everyone?
(2) In light of the fact that that the university is only considering
the tuition payment compensation for the tax advantages outlined
above, and (as far as I know) not on based on the characteristics of
the payments, does this give me any additional ground in contesting
their classification as compensation?
Thank You!
--
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Posted by removeps-groups@yahoo.com on March 29, 2008, 11:03 am
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On Mar 28, 8:13 pm, maud.j...@gmail.com wrote:
> However on reviewing IRS publication
> 970 ("Tax Benefits for Education") and the relevant section of the US
> tax code (section 117) I found that a reduction in tuition for
> graduate student is not taxable assuming:
>
> 1) It is provided by an eligible educational institution.
> 2) You are a graduate student who performs teaching or research
> activities for the educational institution.
> Both of these apply to my situation, so I contacted our payroll office
> and inquired as to why my tuition assistance didn't qualify. The
> payroll office pointed me to Section 117(c)(1) of the US tax code
> which states the provisions that would exempt the tuition assistance:
>
> "shall not apply to that portion of any amount received which
> represents payment for teaching, research, or other services by the
> student required as a condition for receiving the qualified
> scholarship or qualified tuition reduction."
Very confusing. The above 2 paragraphs seem to contradict each other
-- first one says tuition assistance is tax free if you do work,
second one says it is not allowed to be tax free. I was in grad
school once, and the tuition assistance was tax free. There was talk
about making it taxable, which I guess makes sense because of the
lifetime learning credit, but it would not apply to foreign students
on F1 visas and those making more than around 45k, so would be unfair.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Han on March 29, 2008, 11:52 am
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> Very confusing. The above 2 paragraphs seem to contradict each other
> -- first one says tuition assistance is tax free if you do work,
> second one says it is not allowed to be tax free. I was in grad
> school once, and the tuition assistance was tax free. There was talk
> about making it taxable, which I guess makes sense because of the
> lifetime learning credit, but it would not apply to foreign students
> on F1 visas and those making more than around 45k, so would be unfair.
>
When I was sort of a grad student in the early 70's, I was paid as a lab
tec, but had an agreement with my old professor that my work would count
towards a PhD (actually a doctorate in "math and science", to translate the
Dutch). With the supporting documentation, and on J1 status, it was
federally tax-free at the time.
--
Best regards
Han
email address is invalid
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by pleasedontemailme on March 31, 2008, 1:43 pm
Please log in for more thread options On Fri, 28 Mar 2008 23:13:37 EDT, maud.july@gmail.com wrote:
>I am a graduate student at a major public US research institution
>where I am employed as a teaching assistant for 9 months a year with a
>salary of about $15k. In addition to my salary I receive "tuition
>assistance" totaling about $3k per semester, which offsets the cost of
>tuition. In addition to my position as a TA I hold an outside job
>that brings my AGI to over $55k a year.
(snip)
I work in a university business office. If you receive tuition
remission and pay for performing teaching duties, the tuition
remission is taxable. If you receive tuition remission and no pay,
the tuition remission is not taxable.
Please notice that I carefully did not use the words "scholarship" or
"fellowship". Awards that are applied to anything other than tuition
have other rules that are beyond the scope of your question.
Tax treatment of student workers has been extensively litigated. I
would be surprised if you could find a loophole that has been
overlooked for the last few decades.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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