Grad School Tax Questions.
April 14, 2014 6:24 AM Subscribe
I'm entering a PhD program with full tuition covered and a stipend.
I own a home with my fiancee, but my home is 2 hours away from my school. So for the first year, I'm going to rent an on-campus apartment. And I have some tax questions.
Can I deduct my apartment rent?
After the first year, when I'm doing my work and living in my house, can I deduct any part of my mortgage payments as a 'home office'? I'll have a designated area for writing/studying/grading/research etc.
If I buy a laptop, can I deduct that from my taxes?
Can I deduct my apartment rent?
After the first year, when I'm doing my work and living in my house, can I deduct any part of my mortgage payments as a 'home office'? I'll have a designated area for writing/studying/grading/research etc.
If I buy a laptop, can I deduct that from my taxes?
As a fellow PhD student, I have answers to at least one of these questions.
Just to cover the basics, your tuition portion is tax-free, and your stipend is taxable (federally; it varies by state for state tax). If you already have your BA (and/or have been in post-secondary education for 4 years), you cannot deduct your laptop cost unless you have bought it from your university and having it is something your program formally mandates in order for your enrollment to continue . My laptop was not deductible for these reasons. (If you are an undergrad, you can possibly deduct your laptop under a different educational scheme for tax purposes, but it changes for grad students). My understanding is that you can't deduct apartment rent or "home office" stuff - I don't think we get treated like businessmen in that respect. I couldn't deduct research travel expenses (which ran into the many thousands of dollars for me) for the same reason. Hopefully someone can confirm this.
posted by ClaireBear at 6:38 AM on April 14, 2014 [1 favorite]
Just to cover the basics, your tuition portion is tax-free, and your stipend is taxable (federally; it varies by state for state tax). If you already have your BA (and/or have been in post-secondary education for 4 years), you cannot deduct your laptop cost unless you have bought it from your university and having it is something your program formally mandates in order for your enrollment to continue . My laptop was not deductible for these reasons. (If you are an undergrad, you can possibly deduct your laptop under a different educational scheme for tax purposes, but it changes for grad students). My understanding is that you can't deduct apartment rent or "home office" stuff - I don't think we get treated like businessmen in that respect. I couldn't deduct research travel expenses (which ran into the many thousands of dollars for me) for the same reason. Hopefully someone can confirm this.
posted by ClaireBear at 6:38 AM on April 14, 2014 [1 favorite]
To the first two, I don't see how. See the IRS' rules on the home office deduction, in particular:
Exclusive Use
To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.
To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business.
Presumably you're aware that you need to have more than $6,100 in deductions before it does you any good (i.e. gets you over the standard deduction making it worthwhile to optimize)? As a former PhD student, I can say that this is unlikely.
posted by deadweightloss at 6:42 AM on April 14, 2014
Exclusive Use
To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. The area used for business can be a room or other separately identifiable space. The space does not need to be marked off by a permanent partition.
If the use of the home office is merely appropriate and helpful, you cannot deduct expenses for the business use of your home.
To qualify under the trade-or-business-use test, you must use part of your home in connection with a trade or business.
Presumably you're aware that you need to have more than $6,100 in deductions before it does you any good (i.e. gets you over the standard deduction making it worthwhile to optimize)? As a former PhD student, I can say that this is unlikely.
posted by deadweightloss at 6:42 AM on April 14, 2014
Also, just as a word of warning: now is not the time to call the IRS. I called them a few days ago to try to confirm the things above. I spent over two hours on the phone. They seem to have a lot of seasonal temps working there right now for obvious reasons, and these people in my experience do not have any more information than you will get reading the website. I literally spent 45 minutes on hold just to have the website I had up on my screen read to me by the staffer on the phone. Also, if you have different genres of questions (educational discounts, housing questions, etc.), they are dealt with by different departments. My questions apparently fell into three different genres, and so I had to speak to three separate departments, and remain on hold for each one. None of those people told me anything I didn't already know, and on occasion I knew more than they had (by reading instructions to supplementary forms). For two of my three questions, the IRS staffers actually told me that they didn't know the answer (!) and that I should just guess on the form. The only reason I'd recommend calling the IRS about this today is to get a staffer's name along with the advice, so that if you do the form wrong you at least can reply that it was on their own advice. My current plan is to call them back post-April 15, when presumably (I hope!) the temps will be gone and people who know what they are talking about will be answering the phone.
posted by ClaireBear at 6:43 AM on April 14, 2014
posted by ClaireBear at 6:43 AM on April 14, 2014
Also, in case you were thinking of it, my understanding is that you can't put any of your grad student stipend into a Roth IRA (definitely not if you were paid with a 1099; if you were paid with a W2, I'm not sure, as I've never been in that situation). This is because it is "unearned income". Hah.
posted by ClaireBear at 6:48 AM on April 14, 2014 [1 favorite]
posted by ClaireBear at 6:48 AM on April 14, 2014 [1 favorite]
Response by poster: I should add that by the time we file, my fiancee and I will be married filing jointly, with a total income of about $100k.
posted by MisantropicPainforest at 6:50 AM on April 14, 2014
posted by MisantropicPainforest at 6:50 AM on April 14, 2014
Not to nit-pick other answers, but the tuition benefits you receive are, under federal regulations, taxable as W-2 wages.
I'm a PhD student at the University of Texas and while this policy was changed at the federal level several years ago, UT only recently started reporting tuition benefits in this way to be in full compliance. It was kind of an ugly surprise for a lot of us.
UT's FAQ on the topic is here. There is info from the IRS here....but that link is hella slow today. Your school's policy might vary, but it's a good idea to check with HR about what's actually going to show up on any W2, 1099, or 1098-T you will receive so you're not surprised.
posted by pantarei70 at 7:01 AM on April 14, 2014
I'm a PhD student at the University of Texas and while this policy was changed at the federal level several years ago, UT only recently started reporting tuition benefits in this way to be in full compliance. It was kind of an ugly surprise for a lot of us.
UT's FAQ on the topic is here. There is info from the IRS here....but that link is hella slow today. Your school's policy might vary, but it's a good idea to check with HR about what's actually going to show up on any W2, 1099, or 1098-T you will receive so you're not surprised.
posted by pantarei70 at 7:01 AM on April 14, 2014
Not to nit-pick other answers, but the tuition benefits you receive are, under federal regulations, taxable as W-2 wages.
That...does not appear to be true according to the IRS link:
Students only: In general, those portions of a scholarship, fellowship, or grant used to pay tuition, fees, books, supplies, or equipment are classified as a "Qualified Scholarship" and are not includible in the gross income of the recipient under Internal Revenue Code section 117 if the recipient is a candidate for a degree. Any portion of the scholarship, fellowship, or grant that does not correlate to the five items mentioned above is includible in the gross income of the recipient, which means that it is subject to withholding.
It looks like you have a weird situation at UT where they give you cash, which you then use to pay the tuition (or rather, they pay you a wage, and then deduct the tuition for you, is what it looks like?), as opposed to just a straight waiver, and that's why that's the case. UT even has separate names for these things- a "tuition benefit" (we give you money to pay for tuition) as opposed to a "tuition credit" (we just don't charge you anything and no cash changes hands).
If OP has not gotten a W2 for his tuition waiver (which, again, looking at the UT site, it appears that they send UT students a W2) then he should be fine. All scholarships, etc., are reported on a 1098, not a W2.
posted by damayanti at 7:10 AM on April 14, 2014 [1 favorite]
That...does not appear to be true according to the IRS link:
Students only: In general, those portions of a scholarship, fellowship, or grant used to pay tuition, fees, books, supplies, or equipment are classified as a "Qualified Scholarship" and are not includible in the gross income of the recipient under Internal Revenue Code section 117 if the recipient is a candidate for a degree. Any portion of the scholarship, fellowship, or grant that does not correlate to the five items mentioned above is includible in the gross income of the recipient, which means that it is subject to withholding.
It looks like you have a weird situation at UT where they give you cash, which you then use to pay the tuition (or rather, they pay you a wage, and then deduct the tuition for you, is what it looks like?), as opposed to just a straight waiver, and that's why that's the case. UT even has separate names for these things- a "tuition benefit" (we give you money to pay for tuition) as opposed to a "tuition credit" (we just don't charge you anything and no cash changes hands).
If OP has not gotten a W2 for his tuition waiver (which, again, looking at the UT site, it appears that they send UT students a W2) then he should be fine. All scholarships, etc., are reported on a 1098, not a W2.
posted by damayanti at 7:10 AM on April 14, 2014 [1 favorite]
I have been in graduate school for four years, and I have never had to pay taxes for any tuition remission. I get a W-2 and even get a 1098 form because there are some mandatory fees that I can deduct for my school, and it certainly doesn't list anything payments to me, only the fees I paid.
posted by Zalzidrax at 7:14 AM on April 14, 2014 [1 favorite]
posted by Zalzidrax at 7:14 AM on April 14, 2014 [1 favorite]
Agree with damayanti, Zalzidrax, etc. - my understanding is that you specifically don't have to pay tax on tuition (but you do on stipend), although perhaps you have a strange reporting thing going on at UT? Everything I have seen on the IRS website had said that tuition scholarships are non-taxable.
posted by ClaireBear at 7:28 AM on April 14, 2014
posted by ClaireBear at 7:28 AM on April 14, 2014
Am I derailing? Not to derail....so please flag if I am.
This is totally confusing so I understand all the back and forth.
No, we don't get cash at UT, we get a "tuition benefit" credited to our bill which appears on our W2 as if we did get cash. Wonderful, no?
If you are getting tuition benefits and not getting taxed on them, you are fortunate. I went around (and around) with our graduate college and HR office a few years ago to try and figure this out and what I was ultimately referred to was this memo from the IRS referring to section 127 of the Internal Revenue Code. In short, if you get more than $5,250/year in tuition assistance, your university is SUPPOSED to tax it as income per federal law. (I linked to the wrong IRS pub upthread that was too vague.) Another university's explanation is here.
What our HR people told me "off the record" was this this was a Bush/Cheney era policy change, which most universities ignored. Until, here in Texas, our illustrious Governor Perry started paying attention to higher ed. Then we got real serious about the rules and regulations. Some universities are still ignoring that policy - so lucky you if they are.
Anyway -- just check with your individual institution so you don't get surprised. I understand this is kind of in flux with a lot of schools.
posted by pantarei70 at 8:14 AM on April 14, 2014 [1 favorite]
This is totally confusing so I understand all the back and forth.
No, we don't get cash at UT, we get a "tuition benefit" credited to our bill which appears on our W2 as if we did get cash. Wonderful, no?
If you are getting tuition benefits and not getting taxed on them, you are fortunate. I went around (and around) with our graduate college and HR office a few years ago to try and figure this out and what I was ultimately referred to was this memo from the IRS referring to section 127 of the Internal Revenue Code. In short, if you get more than $5,250/year in tuition assistance, your university is SUPPOSED to tax it as income per federal law. (I linked to the wrong IRS pub upthread that was too vague.) Another university's explanation is here.
What our HR people told me "off the record" was this this was a Bush/Cheney era policy change, which most universities ignored. Until, here in Texas, our illustrious Governor Perry started paying attention to higher ed. Then we got real serious about the rules and regulations. Some universities are still ignoring that policy - so lucky you if they are.
Anyway -- just check with your individual institution so you don't get surprised. I understand this is kind of in flux with a lot of schools.
posted by pantarei70 at 8:14 AM on April 14, 2014 [1 favorite]
pantarei: the difference you're pointing to is the difference between getting tuition assistance from your employer (taxable) and getting a scholarship or fellowship from a university (generally not taxable).
Even though your employer is the university, Texas state law requires that most graduate student aid from state universities be classified as tuition assistance from your employer instead of as a scholarship/fellowship from the university. There's no good reason for this; notionally it was intended to save money in some underpants-gnomes kind of logic but it's just Texas politics being penny-wise and pound-foolish.
MPF: Given the bigger financial picture, you might as well talk to an accountant and get a not-bullshit answer, but I would be shocked -- shocked -- if it were deductible.
posted by ROU_Xenophobe at 8:41 AM on April 14, 2014 [1 favorite]
Even though your employer is the university, Texas state law requires that most graduate student aid from state universities be classified as tuition assistance from your employer instead of as a scholarship/fellowship from the university. There's no good reason for this; notionally it was intended to save money in some underpants-gnomes kind of logic but it's just Texas politics being penny-wise and pound-foolish.
MPF: Given the bigger financial picture, you might as well talk to an accountant and get a not-bullshit answer, but I would be shocked -- shocked -- if it were deductible.
posted by ROU_Xenophobe at 8:41 AM on April 14, 2014 [1 favorite]
My recollection is that you cannot deduct the cost of a laptop unless having one is specifically listed as a requirement for a class you are enrolled in (i.e., not research). I'd also be very surprised if you could deduct your apartment's rent; the deduction I think you may have in mind only applies if you are moving your permanent address to be closer to work, not adding a pied-a-terre.
Generally the university will have some tax resources for graduate students that may be helpful for you. Unless you live and work in a very affordable area, though, I don't imagine there will be much that is relevant to writing off some of the costs of home ownership, so I think you may need to seek out some more specialized advice there. Fortunately it doesn't sound like that will be a financial burden for you.
Watch out for the taxable but not "earned income" distinction as others have mentioned. Of course you are likely to be doing exactly the same work whether you are paid as a research assistant or on a training grant, but in the eyes of the tax code these are totally different and can easily lead to, e.g., your overcontributing to an IRA.
posted by en forme de poire at 1:15 PM on April 14, 2014 [1 favorite]
Generally the university will have some tax resources for graduate students that may be helpful for you. Unless you live and work in a very affordable area, though, I don't imagine there will be much that is relevant to writing off some of the costs of home ownership, so I think you may need to seek out some more specialized advice there. Fortunately it doesn't sound like that will be a financial burden for you.
Watch out for the taxable but not "earned income" distinction as others have mentioned. Of course you are likely to be doing exactly the same work whether you are paid as a research assistant or on a training grant, but in the eyes of the tax code these are totally different and can easily lead to, e.g., your overcontributing to an IRA.
posted by en forme de poire at 1:15 PM on April 14, 2014 [1 favorite]
Having taken a class on the labyrinthine U.S. tax law, I would suggest that you speak to an accountant about these questions.
posted by Red Desk at 9:41 PM on April 14, 2014
posted by Red Desk at 9:41 PM on April 14, 2014
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You have a lot of things most grad students don't have, so you need to get good, accurate information to make the most of your available deductions.
posted by Ruthless Bunny at 6:37 AM on April 14, 2014