Mods: I know this is borderline-factual. Please move if appropriate - thanks!
Hey guys,
I’ll be moving to North Carolina as a grad student in August, and I’m trying to budget - but the US tax system confuses me. It’s much more complex than the UK one for low earners, though I suppose if I earned more in the UK and had to fill out a tax return (£40,000+ or so?) I might feel different!
Anyway, so I’ll be getting a fellowship of $16,500. Of this, I will have to pay $1600 in fees which for some reason aren’t covered, but I assume they are tax-deductible. Roughly (I’m not asking for an exact calculation!) what can I expect to end up with in my pocket?
As far as I understand it (warning!), on my F-1 visa I won’t have to pay medicare or social security taxes.
On a slightly related matter, do you think $500 is too much per month to spend on an apartment on this income, including all utilities? I might end up spending money on health-related expenses (I’m on warfarin/coumadin and possibly have neurological problems indicating ivig - could be pricey).
The health insurance looks pretty good to my uneducated eyes - I never had to worry about this before (bless the NHS!) - it has 20% coinsurance and an (in-network) out-of-pocket maximum of $1000. I plan to get my warfarin from wal-mart.
You can simply take a standard deduction of $5350, and a personal exemption of $3400, and have $7750 income left to tax at the lowest bracket. This presumes that you aren’t claimable as a deduction on somebody else’s return. I frankly do not know how it affects things if you are being claimed as a dependent on somebody’s UK return. At any rate, here’s a simple calculator for the 1040EZ, which you might use:
It becomes worthwile to get more complicated if you can deduct > $5350. Unlikely, unless you are allowed to deduct the entire fellowship, like I did my entire stipend when I was a grad assistant many years ago. I think the IRS tightened up on that a couple decades ago, but it appears that there are “qualified” fellowships. Your fellowship program would probably know that information. If you have one of those, it gets pretty easy, too. You’ll do a 1040, simply deduct your fellowship, and have $0 income.
Take a look at the IRS website. Dig around and download the instructions for the 1040A and the 1040EZ (these are PDF files). Work out what you think will be the case. If yabob is right — and I know of no reason why he wouldn’t be — you’d be paying about $800, but you might find things in the tax instructions that you didn’t know about before which could affect that one way or the other.
You may also be expected to pay a state income tax, which is almost always lower, but I don’t know what the case would be in NC. Somewhere there is an official website for the state of North Carolina which should have the necessary information.
Oh, and don’t forget to budget for the North Carolina state income tax, too. Not all states have income taxes, but most do, and it appears that that includes North Carolina.
Above all, ask the Financial Aid Officer these questions. It’s possible that the stipend is tax exempt altogether (my fellowship several years ago was). And have you looked into university housing?
PS- $500 for apartment & utilities seems reasonable and you’re frankly not going to do much better anywhere for a decent place, but if the school has a reasonably priced meal plan I’d get that as well. Depending upon how much the school subsidizes it, a meal plan can be cheaper than/as cheap as cooking at your home (especially when you figure in costs like detergent and pots/pans and what-not) plus it frees up a lot of time spent cooking/cleaning (dishes- agh! my least favorite household chore) that you can use for study.
Hmmm. That’s right. It appears that you have to use 1040NR or 1040NR-EZ, and the standard deduction doesn’t apply. Whoops. I suspect the 1040NR-EZ will suffice for your purposes.
You can call the IRS directly at 1-800-829-1040 (no idea if that’s available overseas) which I’d (in my very non-professional HR Block using opinion) do as this is a complex matter. AND find out whether the fellowship is for sure taxable and if so to what extent (because many taxable fellowships are partly but not fully taxable, AND then there’s the alien thing to complicate it further).
Speaking of calling internationally, most of the international students I’ve known have purchased AT&T calling cards from Sam’s Club (which if you’re not familiar is a “volume discount warehouse” subsidiary of Wal-Mart). International calls vary, but generally they’re cheaper using those cards than calling long distance in the same area code is.