Scholarships are not taxable if used for qualified education purposes. They are taxable if you instead use the amount for non-school purposes. If 100% of the waiver is going towards tuition and fees, why should this be any different?
It may come down to a very non-GQ question of whether tax deductions are a good instrument for advancing social policy. It does feel a bit odd that I’m not taxed on the employer-paid portion of my health plan.
I said upthread that the GQ answer is really that they need to find ways to pay for other cuts. In my view, many of the responses here really fall outside of what’s appropriate for GQ.
Anyway, to be clear, the subject is not a tax deduction, but imputed income. I have imputed income on my company-provided life insurance that’s over a certain amount. So, they provide life insurance, I opted for extra, and there is imputed income on some of the overage amount. With grad students, it’s not that they get a tax deduction for the tuition, it’s that the tuition discount would be considered income, even though they never received it. I think debt that’s written off gets this treatment currently.
You’re all over economic issues, so I’m sure you know all this, actually.
Know about it, but really clear on what I think the best practices are. Not that here is the best place to get into it. If nothing else these proposals are making me think about the edge cases more than I was.
The reason that healthcare insurance from the employer is tax free was to get around the wage freezes of WW2. It has caused massive changes in the insurance market and costs the government huge amounts of money. There is no reason to keep it except beneficiaries are too powerful to change it.
Scholarships are not a perk of employment. Tuition waivers are. If the schools wish to change the tuition waivers to scholarships then they will be treated like scholarships.
There are IRS rules to distinguish job training from a perk. The basic difference is that the training must be for the job you have and not a different job. So target training is not a perk because it is applicable only to the job of a policeman. Training such as management, networking, or interviewing classes would be considered income unless the person’s job is managing, networking, or interviewing. Grad students are not being trained how to be better teachers so their tuition waivers are a perk.
In a PhD program many of them certainly are being trained to be better teachers and to do better research, the jobs they are doing as TAs and RAs.
Teaching was absolutely a requirement as a part of my education. We’ve already been over this.
Ok, so let’s say that everything goes through and now the University must offer scholarships.
What precisely stops the Universities from requiring exactly the same requirements to receive the scholarship that a TA would be required to meet in order to be hired as a TA? And the scholarship just covers tuition, in order to make enough for living expenses, scholarship recipients are eligible to be hired to work for their professors, just like now.
This kind of seems like it would make minimal difference in practice.
Most people do not pay double tax to two countries on the same dollar income. This includes rich students: they don’t have to pay USA tax on their Russian Rouble income. (Rich students with private income are rare anyway, and American tax is full of exemptions anyway). They still have to pay tax on their American income. Due to tax arrangments, that tax may go to their home country, instead of to the USA, but it’s taxed at least at.the American rate, and maybe more.
That may be why the insurance is deductible for the employer (which is something that people complain about – the deductibility may be distorting the market), but we’re asking about why it’s not considered income to the employee. At least, every time I’ve heard complaints about the system it’s because the insurance is tax deductible to the employer.
There are IRS rules that say that tuition discounts and such are not imputed income. The tax bill proposes to change those rules. So, it’s fair to ask why these other forms of education aren’t imputed income. Falling back on IRS rules is meaningless in this context because changes to those rules are exactly what’s under discussion.
As always with this stuff, each and every provision in the law and in the IRC is a mix of consistent logic and arbitrary decision. Where the arbitrary part may be for reasons of simplicity, popular political palatability, *sub rosa *lobbyist payoff, or simple accident of history.
The one thing for sure is that the proportion of logic varies wildly from line to line in the tax code and the overall proportion isn’t more than maybe 1/3rd. The great bulk is just special pleading by one interest group over another.
Which is not to say this state of affairs is the economically best possible way to run a tax system. It clearly isn’t.
But it is where we’re starting from and any changes will be happening against this background and are generally still driven by the exact same unholy combination of good logic and more base considerations. We can change the tax code, but we seem unable to change tax politics.
The Washington Post has article today on this subject.
Respectfully, your comment and others like it seem to have a blind-men-and-the-elephant vibe. Some programs require teaching and some absolutely don’t. TAships and RAships are plentiful in many STEM fields and like hen’s teeth in the social sciences and (AFAIK) many of the humanities.
Plus, each department is different. Some philosophy departments will admit ten grad students each year but guarantee two of the most promising ones TAships for their first five years. Others will admit fewer students and effectively have them share two TAships, taking turns each semester.
My ex was getting her Ph.D. in archaeology while I was in grad school for mechanical engineering. We were both enrolled at a big land-grant RI.
I worked as a TA the entire time and didn’t pay a dime in tuition. If I had an RAship, I wouldn’t have taught at all. She was a rockstar student and got TAships for about 3-4 semesters. She paid tuition the rest of the time she was a grad student.
One of her cohort had an undergrad degree in chemistry, so he worked as a chemistry TA and got tuition remission for his entire grad school career. An officemate of mine was getting his Ph.D. in history, but had an undergrad degree in civil engineering. He taught statics with me and funded his entire Ph.D. that way.
One of the best pieces of advice I ever got was “No matter what, don’t pay for grad school.” The idea was that if you’re good enough, the school will give you a full ride. If you’re not good enough to get TAships or RAships the whole time, you shouldn’t be in grad school.
Again, this varies tremendously by field. Anyone admitted to my grad school for engineering was “good enough” to get work that provided tuition remission. But over in the social sciences, plenty of very smart students weren’t “good enough” to get those positions.
Here’s my quick estimate of the large-scale effect of taxing tuition remissions on NIH-funded biomedical research. I’m using 2009 numbers, since that’s the most recent year where I could find information on the numbers and funding sources for graduate students (gigantic PDF: report on the biomedical workforce)
In 2009, there were ~26,000 PhD students supported by research assistantships, and ~8000 supported by teaching assistantships. Combined, that’s a total of 34,000 biomedical researchers that would be affected by taxing tuition remissions.
The tuition for these students is typically that of flagship state universities ($25,000-$30,000) and major private universities ($40,000-$50,000). I’ll assume the average is $35,000, along with an average stipend of $25,000. Under the current senate bill, tuition would be taxed at a marginal rate between 12% and 22%, for a total additional tax of $4800. Multiplied by the total number of affected graduate students, the total additional tax is around $160 million.
This will ultimately come out of NIH funding to universities and medical schools, which totals $16 billion in 2009. So this tax increase works out to a round 1% cut to NIH-funded biomedical research.
Some types of funding will be more affected. In research labs like the ones I’ve been in, the standard unit of funding is the R01 grant, which was $220,000 per year in 2009. That typically pays for a graduate student and a postdoc or technician. Taking $4800 from that will work out to a 2% funding cut.
Once the situation stabilizes, this wouldn’t be the end of the world for biomedical research. But taxing government-funded research is a foolish way to raise revenue.
And in full disclosure, the tax on tuition remissions would actually help me. I defended this summer, and the sudden wave of grad student dropouts would only improve my prospects on the job market. It’s still foolish.
The next step is to obviously tax the tuition rebates the K-12 kids get. Do you know how much it costs per year to educate one of these? And the parents don’t have to pay a dime! That is clearly taxable income. Maybe in the next tax bill. 
Yes, especially those receiving vouchers. Put Betsy DeVos on that.
I think folks who are stopped for tickets on the highway should also pony up a bit extra (for the extra safety service they just received.
And don’t get me started on that family down the block whose house burned down. Beaucoup dollars in free fireman services.
You don’t seem to understand the concept of taxable income.
Can you expand on this? The thread is about something that hasn’t been taxable income in the past (tuition discounts) potentially becoming taxable income. And, then asking, what is the benefit to the country of making that kind of discount taxable?
Any reason why private school vouchers shouldn’t be considered taxable income? When a fire department saves your house, they are providing a service – should that be imputed income?