There’s been a fair amount of outraged ink spilled over the revelation that the proposed republican tax bill will tax tuition waivers to grad students. Those opposed argue that treating waivers as taxable income severely reduces the students’ take-home income and changes the financial calculus on earning graduate degrees to turn away students who lack the personal wealth to self-fund their studies. Assuming that is true, what benefit do the republicans say will come from making this change?
It is hard for me to believe that the added revenue will amount to anything significant from a budget perspective. And it feels odd because income taxes, in my mind, are taxes on money I receive, not money I pay out. I appreciate any clarity on this subject dopers can provide.
Well, in actual practice the university would either
(a) waive only some tuition and make a cash payment to the grad student to cover the tax on that tuition. (done in a way where the payment never reaches the student)
(b) waive all tuition and also pay the tax
So it’s a tax on universities. Which does still work out to be a tax on grad students, since a university is going to offer fewer grad student positions.
Part of the political calculus here is that these grad student slots are pretty much majority foreigners. Publicly funded universities take public money and then use it to offer opportunities to foreign grad students. And not just the cream of the crop, for whatever reason, most university grad student programs are majority foreign students.
If tuition isn’t tax deductible for most people, then technically this would be making things more consistent.
I am having trouble deciphering legalese in the bill, but don’t see any *specific *mention to this. It wonder if it’s due to omission, whether intentional or not? None of the articles on it quote a specific part. My Ctrl+F skills may also not be on point; “tuition” is mentioned 10 times but mostly in reference to undergraduate tax credits; waiver is mentioned once and irrelevant.
Do you have a link? In engineering, you’re probably right, but in other STEM fields, a majority and not a sizeable minority?
In my case, it wouldn’t have reduced the take-home income, it would have multiplied my taxable income by almost three and a half when I was actually only receiving 12K minus withdrawals. Since I was actually living on the 12K stipend, adding 29K to it would have meant having to drop out.
Those foreign grad students are often taking jobs Americans don’t want; or at least, the immense majority of those putting themselves through grad school as TAs are. Still using 20yo figures, why would someone who can get paid 30K with a bachelor’s want to spend several years living on 12K? Only those who really wanted to go into academia or research would, whereas for the foreigners it actually makes economic sense.
But you see: for someone who thinks that it’s uppity for a foreigner to have a decent job, much less give orders to natural-born citizens (and I’m channeling people like that from several nationalities), giving those uppity foreigners a kick to the ass is perfectly fine. Who is some immigrant with a perfect GRE to think he can do better than a national who barely passed his required coursework? Kicking the intelectual elites plus kicking the foreigners, in their world the only thing that’s missing to make it a perfect kick is having it punt them out of the country. Meanwhile, the Daddy’s Boy whose entrance to a supposedly-elite school was bought by a new building is fine, because he’s “one of our own”.
While a fair number of the Internet comment sections are of the “bad bad foreigners are getting these breaks” variety, the one I see more commonly is “punish people for getting higher education (well known to be liberally biased).”
Of course, Internet comment sections are not an ideal cite for anything other than the basic depravity of humanity. What the actual intent is, it’s hard to say.
Or for that matter a cite that they’re not the cream of the crop? Grad schools are not, for the most part, trivial to get into–particularly for people from other nations who may not speak English as a first language. There’s an awful lot of hurdles in place that these students have managed to clear to get into the programs in the first place. Foreign students being a majority isn’t proof of that by itself – there’s a lot more foreigners than there are non-foreigners in the world.
Ah, so it’s not so much explicitly increasing the tax on grad students but people taking the general layout of the plan and trying to work out the effect on some specific cases?
That’s my son’s situation as well. In his case it will double his gross income, which will double his tax bracket from its current 12% up to 25%. His standard deduction will increase, but nowhere near enough to compensate for the jump in income.
BTW, my son is a red, white and blue All American Boy in a STEM program.
It would be more consistent to count a tuition waiver as a scholarship rather than income.
I have heard that this particular proposal was aimed at taxing tuition benefits for employees. E.g. my university offers all employees to take three courses per year, or a few thousand towards tuition for courses or professional training outside the university. Three courses per year could cost between $18,000 and $36,000, depending on the number of credits. A quick search tells me that this benefit is currently only taxable above a $5250 threshold.
However, the proposed tax changes supposedly ends up being ambiguous about who counts as an “employee”, and what sorts of tuition benefits count as a taxable remission.
Like thelurkinghorror, I tried to find the exact language in the bill, but I couldn’t make heads or tails of it. I have a hunch that the relevant change is buried in “SEC. 1204. REPEAL OF OTHER PROVISIONS RELATING TO EDUCATION”, which has a lot of items like “(a) IN GENERAL.—Subchapter B of chapter 1 is amended—(1) in part VII by striking sections 221 and 222 (and by striking the items relating to such sections in the table of sections for such part).” Someone with more time and expertise than me would have to go through every one of those changes and analyze their effect on tuition.
For one point of comparison, I did the math for my situation in 2016. With a $29k stipend, $50k tuition remission and filing singly, my federal taxes would go from $2333 to somewhere around $11000. Once I include FICA and state taxes (only on the stipend) that means take-home pay would go from $1980/month down to $1200/month.
That’s a good guess as any. In that section, Sec. 1201 and 25A are about American Opportunity Credit (undergraduates only), 1202 is ESAs (any student, but nothing to do with waivers), 1203 is about loans.
I don’t feel like doing the math on my grad school taxes right now, but you paid FICA as a grad student? IIRC Social Security instead went into a 457 plan (much better!) and medicare was exempt. I went from paying 5 separate taxes to 1 when I went to grad school (moved from a state that had income tax and disability insurance to one that had no state tax). IIRC the only time I paid medicare is during June and July, when my regular assistanceship didn’t apply but I usually had other sources of funding through teaching.
I lean towards that too, it is a way to stick it to their political adversaries. I also think that is why the bills eliminate the state and local tax deduction, and eliminate the mortgage interest deductions. Eliminating those deductions hurt people who live in large cities in blue states where people own expensive homes and pay a lot in state and local taxes. If your goal was to stick it to the liberals in New York City or San Francisco, then altering the tax policy to punish people with graduate degrees, people who pay high state and local taxes and people who live in areas of expensive real estate would do it pretty well.
If you are lost reading that, paragraph (1) provides that a qualified tuition reduction is not taxed.
Paragraph (2) says it applies only to undergraduate tuition.
Paragraph (5) says it also applies to graduate tuition for graduate teaching and research assistants.
And most of the conversation in this thread has been about STEM grad students. I’ve seen no discussion of humanities grad students, most of whom are not foreignersand who skew pretty damn liberal IME. (I used to be one.) I see this move as another slam at American intellectualism.
Yup, though like you it varied. I always paid FICA during the summer, and I also paid it for a few semesters. Might have had something to do with the source of funding for my RAship? Going forward, if the current grad student unionization vote passes, I believe all grad students will pay FICA throughout the year. My wife, at a different university, paid FICA throughout.
Practically speaking, I think this is a function of how well the university tax lawyers make their case to the IRS…
Thanks for digging that up. My eyes started glazing over part way through looking up the changes in Sec 1204(a)2…
Whelp, there goes any argument that the effect on graduate students may not be so bad in some cases. That’s pretty unambiguous: TAs and RAs are hosed. That’s damn near 100% of PhD students, and a sizeable chunk of MA/MS students.
That certainly wouldn’t be the case for a Spaniard. There is a bilateral treaty by which Spaniards living in the US do their income tax in the US, get a special deductible equivalent to the basic living deductible of Spanish income tax, and file with the Spanish Treasury that “I did my income tax in the US”.
But the treatment is no different for students and others, and you only end up paying no income tax if the math says you don’t.
Other countries have other treaties; yet others don’t have any specific treaty so their citizens’ income is treated exactly as that of Americans.