Education, Taxes, & Benefits Duke University August 22, 2017
Megan Hutchinson, CPA Senior Manager - Tax Raleigh Office
DISCUSSION POINTS TYPES OF INCOME TAXABLE v NON-TAXABLE QUALIFIED v NON-QUALIFIED EXPENSES REPORTING DOCUMENTS TAX RETURN FILING IRAs EARNED V UNEARNED INCOME EDUCATIONAL TAX CREDITS & DEDUCTIONS TAX PAYMENTS
In the eyes of the IRS All are sources of taxable income Unless
You tell them differently by filing an income tax return
TYPES OF INCOME Scholarships - $ for the purpose of general education expenses (undergrad) generally not taxable Fellowships - $ for to aid in the pursuit of study or research (grad) sometimes taxable Research grants - may be taxable, depends on use Research Assistant - almost always taxable Teaching Assistant - almost always taxable BUT can be exempt from SS tax
TYPES OF INCOME Stipends - A form of salary generally taxable Lower than permanent salary for similar work. Carries other benefits - accreditation, instruction, food, and/or accommodation. Universities usually refer to money paid to graduate students as a stipend, rather than as wages, to reflect complimentary benefits
NON-COMPENSATORY A Duke student receives financial support to do research solely for her thesis that is needed for her degree. The research is not for, nor does it provide a benefit to a faculty member. COMPENSATORY A faculty member is working on a project and pays a student to assist with the research. The student participation is not a degree requirement/ If the student was not assisting with the research, the faculty member would have to hire someone else to do the work or do it himself. A student is paid a stipend to participate in a conference directly related to their graduate studies. No work is performed. A student is paid a stipend to attend a faculty member s conference, arrange seating, mail invitations, and provide chauffeur service to/from hotels. As part of a degree program, a Duke student is paid to participate in summer internship program at an outside organization where he will focus on learning research techniques. He will not be providing a service to the outside organization, but is in a learning role. A student is paid as an intern in a Duke department for providing research assistance. There is no program designed to train students as part of their degree requirements. The student is providing a needed service.
TAXABLE v NON-TAXABLE For Scholarships/Grants/Fellowships Tax-free or taxable depends on type of expenses paid with the funds and whether you are a degree candidate
QUALIFED EXPENSES Tuition and fees required for enrollment Course-related expenses (fees, books, supplies, equipment) must be required of all students in the course
NON-QUALIFED EXPENSES Insurance Medical expenses (including student health fees) Room and board Misc. Fees (Recreation, Parking, Activity) Research Travel Clerical help Equipment & other expenses that are not required for enrollment
TAXABLE vs NON-TAXABLE For Scholarships/Grants/Fellowships Degree Candidate Portion used to pay Qualified Expenses is not taxable Not reported on tax return
TAXABLE vs NON-TAXABLE For Scholarships/Grants/Fellowships Degree Candidate Portion NOT used to pay Qualified Expenses is taxable Reported on tax return
TAXABLE vs NON-TAXABLE For Scholarships/Grants/Fellowships Non-Degree Candidate Fully taxable
Reporting Documentation W2 Type of Income Wages ie/ Teaching Assistant, Work-study, compensatory internships 1099-Misc Scholarships, fellowships, non-compensatory internships & post-doctoral awards with tax withholding Courtesy Letter Scholarships, fellowships, non-compensatory internships & post-doctoral awards without tax withholding 1098T Duke administered financial aid posted directly to the Bursar Account (Does not include financial aid administered by third parties) 1042S Earnings that fall within the scope of a tax treaty, scholarships, fellowships, noncompensatory internships & post-doctoral awards
W2 Issued by Duke Payroll Services to: students who have a work requirement in order to receive their scholarship, grant or fellowship money. all employees of Duke University and Duke University Health System who are US citizens, permanent residents or residents for tax purposes. to foreign national employees who are not eligible for or do not claim a tax treaty. to foreign national employees whose earnings exceed allowable maximums of a tax treaty.
1099-MISC Issued by Accounts Payable to students who are US citizens, permanent residents, or residents for tax purposes, and who receive payments through the non-compensatory payment system. Any scholarship and fellowship payment for which the student elected to have taxes withheld. All postdoctoral scholars and student internship payments. Box 3 Non-compensatory payments - payments Duke University makes to individuals who are receiving payments for scholarships, fellowships, summer internships, or post-doctoral training activities. Individuals receiving these payments are not considered a Duke employee, and are receiving funds through Duke University for educational enrichment opportunities. Box 7 Nonemployee Compensation Unlikely that you would receive independent contractor compensation from Duke or another funding agency for your role as a graduate student. Self-employment is indicated by income reported in Box 7 of a 1099-MISC. If you receive Box 7 income from your role as a graduate student, you may want to double-check with the issuing body that they have issued you the correct form.
Courtesy Letter
Courtesy Letter Issued by Payroll Services to students..who are US citizens, permanent residents, or residents for tax purposes, who receive scholarships or fellowships through the noncompensatory payment system, and.who choose not to have tax withholdings taken from their payments Duke is not obligated, and doesn t report this amount to the IRS. This does not mean, however, that the payments are not taxable. It is up to the student to determine whether or not this is reportable income. This information is provided as a courtesy.
1098T Box 2 The amount of qualified tuition and related expenses billed through your Bursar account. It is not the amount you paid. Box 5 The amount of scholarship and fellowship payments posted to your Bursar account. 1098-T is issued by the Bursar s Office to students who are US citizens, permanent residents, or residents for tax purposes, and only to those students who had tuition & qualified fees billed during the calendar year that exceeds grants & scholarships posted during the same period. Payments from Duke posted to your Bursar account for university billed charges such as tuition and insurance are reported in Box 5 as scholarships or grants and should be included when adding up your scholarship and fellowship income.
Four Steps to Reporting 1. Add up how much you received in scholarship and fellowship income. 2. Determine how much you paid towards qualified educational expenses. 3. Calculate the taxable portion of your scholarship and fellowship income. 4. Report the income and educational expenses on your tax return.
1 Add up your Scholarship & Fellowship Income Potential sources for the information... W-2 Form 1099-Misc, Box 3 Courtesy Letter Form 1098-T, Box 5 Bursar Account Detail
2 Determine how much you paid towards Qualified Expenses Two potential sources. Form 1098-T Box 2 Personal records (checks, paid receipts, credit card statements)
3 Calculate Taxable Portion of Scholarship & Fellowship Income Example Worksheet 1-1, IRS publication 970
4 Report the Income and Educational Expenses on your Tax Return
Turbo Tax
EARNED v UNEARNED INCOME Any income reported on Box 1 of a W-2 (or Box 7 of a 1099-Misc) is earned income. All other sources are unearned income.
EARNED v UNEARNED INCOME Wages, salaries, etc. Wages you receive for providing personal services are compensation could be stipends/ta/ra services Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2 - which is rare!!
EARNED v UNEARNED INCOME IRA or Roth IRA contributions Must have received taxable compensation (earned income) during the year
SOCIAL SECURITY EXEMPTION Temporary Student Exemption Work full-time in registrar s office and take advantage of tuition-free enrollment NO Attend school full-time and work part-time contingent on continued enrollment YES (TA/RA income)
TAX DEDUCTIONS vs CREDITS Deductions - subtracted from your income; they are amounts you don't have to pay taxes on. If your tax rate is 15%, your tax savings will be only 15% of the amount of the deduction. Credits - subtracted from your tax liability so you save 100% of the amount of your credit. Example, a $1,000 credit will reduce your taxes by $1,000, but a $1,000 deduction (in the 15% tax bracket) will reduce your taxes by only $150.
EDUCATIONAL TAX CREDITS/DEDUCTIONS American Opportunity Credit Lifetime Learning Credit Tuition and Fees Deduction
EDUCATIONAL TAX CREDITS/DEDUCTIONS All require the use of qualified expenses Cannot use same expenses as those used to reduce taxable scholarship/fellowship income
EDUCATIONAL TAX CREDITS/DEDUCTIONS Student Loan Interest Deduction Reduce income subject to tax up to $2,500 Loan solely to pay qualified education expenses Loan NOT from related party Income limits
EDUCATIONAL TAX CREDITS/DEDUCTIONS Student Loan - Capitalized Interest Unpaid interest added to the outstanding principal Treated as interest for tax purposes Is deductible as payments of principal are made on the loan (allocated) No deduction allowed in a year in which no loan payments were made.
TAX PAYMENTS W-2 WITHHOLDINGS 1099-MISC WITHHOLDINGS CALCULATION WORKSHEET WITHHOLDINGS
TAX PAYMENTS SHOULD MAKE ESTIMATED TAX PAYMENTS FOR 2017 IF YOU EXPECT TO OWE AT LEAST $1,000 IN TAX FOR 2017
TAX PAYMENTS after subtracting your withholding and credits and if you expect your withholding and credits to be less than; the smaller of 1. 90% of the tax to be shown on your 2017 tax return, or 2.100% of the tax shown on your 2016 tax return (110% if adjusted gross income exceeds $150,000)
TAX PAYMENTS QUARTERLY PAYMENT DUE DATES 1 ST QTR APR 15, 2017 2 ND QTR JUN 15, 2017 3 RD QTR SEP 15, 2017 4 TH QTR JAN 17, 2018
TAX PAYMENTS
RESOURCES http://www.irs.gov/pub/irs-pdf/p970.pdf
RESOURCES http://www.personalfinance.duke.edu
Megan Hutchinson, CPA mhutchinson@cbh.com 919-825-4251