Taxes on living stipends paid by graduate schools...
August 18, 2010 9:01 AM   Subscribe

TaxFilter: I'm a Canadian who began a Ph.D at an American university. Tuition was waved and I received a living stipend of about $17,000 (paid monthly). This is pretty typical for graduate programs across Canada and the US.

When it came time to files taxes for that year, I was told (perhaps incorrectly) that stipend income was exempt from taxes as per a cetain treaty between the US and Canada (don't remember what this treaty was, although I can find out). I filed the relevant forms and got $750 back. Repeat this the following year.

Fastforward a few years and my taxes have been reassesed. The Canada Revenue Agency wants that $1500 back.

Despite having pretty normal lives as far as taxes go, we use an expensive business accountant. What he says about this is: "The only possible way out would be to get T2202A slips from your US college showing the tuition amounts you paid – this is a specific form that universities and colleges fill out for Canadians so that they can claim certain deductions and it also makes scholarship income (some or all depending on the year) tax free." The thing is - I didn't pay any tuition - zilch, nada. And it wasn't scholarship income - it was a living stipend. I recall this being an important distinction when I was filing the paperwork.

I've already had the accountant look at this again. What can I do now, aside from say "Are you sure? Because 5 years ago a university tax centre aid and a Canada Revenue Agency call centre assistant told me otherwise. No, they weren't accountants..."

If I have to pay back the money, so be it, but I'd like to be sure I am acting on correct information. There must be mefites out there - Americans / Canadians whose tuition was waved and who received a living stipend (not a scholarship) to attend post-secondary at a school in their Northern / Southern neighbour's country: what can you tell me about the taxes you paid on the stipend income you received?

If you haven't been in this situation, but you're savvy: what should I do? Who do I go to for help - or do I just let this go? I do wonder if the accountant knows what he's talking about here. Trying to talk to Revenue Canada is probably useless - last time they had to transfer me 3 times before I got to anyone who seemed to know what they were talking about. If you have any idea where I can get more information, please let me know.
posted by kitcat to Work & Money (12 answers total) 1 user marked this as a favorite
Response by poster: Ok - there's only one tax treaty between Canada and the US.

Despite not being great with legalese, I think the section relevant to my situation is here:

Payments which a student, apprentice or business trainee, who is or was immediately before visiting a Contracting State a resident of the other Contracting State, and who is present in the first-mentioned State for the purpose of his full-time education or training, receives for the purpose of his maintenance, education or training shall not be taxed in that State provided that such payments are made to him from outside that State.
posted by kitcat at 9:21 AM on August 18, 2010

I'm an American PhD student in the US so I can't help with the Canadian aspect, but I can tell you my situation. I'm paid a similar stipend for living expenses that is taxed as regular income. This comes directly from the university and has taxes withheld. Other people I know have fellowships that come from other sources and do not have taxes withheld but they still end up owing regular income taxes on it.

My tuition, in a sense, is waived in that I don't pay anything out of my own pocket. But what really happens is that my advisor is paying my tuition to the university. This is where it gets complicated because two different things can happen. The first is that even though I don't see any money, this tuition is reported to the IRS as income (added to my W2) but then the university also reports that I paid tuition (on a form called 1098-T). I end up having to pay more taxes because of the higher reported income than I really had, but certain education-related tax breaks compensate for it. The second possibility (that has happened to students at the same university) is that the advisor pays tuition directly to the university but the university does not report this as income to the student (so no change on the W2 form). Along with that, the university reports that the student did not pay any tuition (on the 1098-T form) and consequently they cannot claim any education-related tax breaks.

I'm pretty sure your T2202A is analogous to the IRS's 1098-T form and the university will usually keep those on file for at least a few years back. I would talk to the university's payroll department.
posted by Durin's Bane at 9:28 AM on August 18, 2010

Response by poster: Durin's Bane: I just want to get this straight. At least from the US perspective, tuition must have to have been reported on your forms (regardless of the fact that you didn't pay it yourself) in order to get the educational tax breaks, right?
posted by kitcat at 9:45 AM on August 18, 2010

Yes, that is correct. So in your case, you'd probably have a much stronger argument if your T2202A form shows a paid tuition.
posted by Durin's Bane at 9:50 AM on August 18, 2010

I'm a Canadian citizen who did grad school in the U.S. When I first got to grad school (in 2001), I did a fair amount of research on the subject; here's how I interpreted the situation:

The tuition remission is classified by the CRA as income you received. (I think it goes on the line labelled "other income".) Your net income should then be tuition remission + stipend income. However, you can also claim a non-refundable tax credit on Schedule 1 for the tuition moneys paid on your behalf. (Use Schedule 11 to figure the amounts.) Unfortunately, this tax credit is calculated at the tax rate of the lowest tax bracket, and given how high tuition is at some U.S. schools, your net income may be high enough to bump you into the next higher tax bracket. I got around this by filing as a non-resident of Canada; for non-residents of Canada, only Canadian-source income needs to be reported, so I entered a lot of zeros in my T1 each year. I have dual citizenship, though; this option might not be open to you if you're in the States on a J-1 visa.

Your question isn't quite clear on why your assessment changed. Did the CRA start including your tuition as part of your income? If so, the T2202A will fix that right up. However, you may still be running into the problem with the tax brackets that I mentioned above, and I'm not sure that there's anything to be done for that.

Finally, do note that I did the above mentioned research nearly ten years ago when I started grad school, and it's possible that the tax code has changed in subtle ways since then. Consult the CRA website for more information; there's some really in-depth information. In particular, look for "interpretation bulletins", which explain things in incredible (if pedantic and legalistic) thoroughness.
posted by Johnny Assay at 9:59 AM on August 18, 2010 [1 favorite]

I was off-scholarship after 2006, when this came in, but would it work to have letters from the relevant university office on letterhead? Or, alternatively, take a blank T2202a form to your registrar and have them fill it out (because they probably won't have them on file) -- I know my husband has done that with a UK university. Get old forms for all the relevant years.

Strickly speaking, you may have paid tuition. Most US universities give grads a tuition scholarship that it just takes right back. Check out your visa forms (I-94?) : where it lists how much money you need and how much money you have, it will likely be an amount that is your tuition + living stipend. Fortunately the Canadians stopped taxing the tuition scholarships; under the old system, it was possible to pay tax on money you never saw. (Tuition was deductable at 16%, but US amounts are so high that they were taxable at 22%).
posted by jb at 10:01 AM on August 18, 2010

Johnney Assay is correct -- except that the Canadian tax code changed for 2006, when scholarship income became non-taxable at any rate. You just need to get those forms to show that you were a student.

If your uni doesn't pay-then-charge tuition, you can always have a T-2202a that says 0.
posted by jb at 10:04 AM on August 18, 2010

Oh -- your living stipend is a scholarship. If it's reported to the IRS on a 1099s (for international students), it's scholarship income.

TAships and other employment income is reported in the US on a W-2. (take that, Dean [Redacted]! you claimed that TA or RAships were learning, not work, when you were crushing the union, but the IRS disagrees with you!)
posted by jb at 10:08 AM on August 18, 2010

Just fyi, if it does end up being calculated as income, it's possible that the $1500 is for your CPP. I'm not an accountant. But you might want to check to see what the fee you are paying is. Depending on how long you live in Canada between age 18 and 65, it's possible that maybe you WOULD want that stipend counted as income, so that your CPP is better. You have to have worked 40 years between those ages to get CPP, as I understand it.
posted by acoutu at 10:13 AM on August 18, 2010

Response by poster: Ouch. My head hurts, and I wish I had all the forms in front of me.
Nevertheless, this is great, incredible information.

I don't know why the reassessment happened. I did at one point get a letter from CRA telling me that I had received some $42,000 tuition dollars in income (!!!!). I just gave it to my accountant and that's all I know about that. I got a lot of letters, none of which really explained what was going on. So maybe yes, they have counted the tuition as income.

And to clarify dates, this is for tax years 2004 and 2005.
posted by kitcat at 10:26 AM on August 18, 2010

I'm a Canadian going to grad school in the US. The international students office at my school has tax resources, and the Canadian club on campus cooperates with another local university to hire a local tax accountant who specializes in ex-pat taxes. Those are the best resources I know.

I used the treaty you reference once. As far as I know it applies when the net income for the tax year in question is less than $10k. Then the income is exempt from US taxes. They are almost certainly other conditions you must satisfy. When you qualify for the exemption the state waives income taxes too, or mine did at least.

My research stipend gets reported on a W-2 so it's definitely not exempt. In fact, the graduate student council at my school is lobbying hard to get grad student stipends (from research or TA activities) to be tax exempt. I would use that as evidence indicating that they are NOT being tax exempt.

I am told that if you paid taxes on it in the US, you can claim exemption based on foreign taxes paid.
posted by KevCed at 12:37 PM on August 18, 2010

The T2202A should be filled out by your university even if you haven't personally paid tuition. This is explicitly noted on the form - I've fought with many administrators at a number of universities about this!

Tuition and fees paid by a sponsor, university, or scholarship (ie - anyone who's not you) can still be recorded on this form. If you fill out the T2202a, you are eligible for tax relief on the tuition fees paid and receive an allowance of $x for every month of full time study. (I can't recall the exact figure.)

A living stipend is considered a scholarship (as far as I and my accountant can tell). However, since you're taking about 2004 and 2005, the poster who indicated that only $1500 in scholarship income per year is tax free is unfortunately correct. I had to pay a sizeable amount of tax on money that only covered tuition fees because of this (I received the academic year's fees in October 2004 but was only allowed to claim 3 months of tuition on my tax return/T2202A - which meant that the remainder of my overseas fees were treated as taxable income, even though the university had already received all of it!!!) I'd send Canada Revenue the T2202As for 2004 and 2005 and see what they say. At the very least you should get some tax relief from the educational allowance for full time study...
posted by lumiere at 12:49 PM on August 18, 2010

« Older a problem for many, it seems: think line appears...   |   Help me help them Newer »
This thread is closed to new comments.