The Tax Labyrinth

Source: Frustration, by Peter Alfred Hess, on Flickr.

April is upon us. Spring has sprung, mockingbirds are singing, and thousands of graduate students and postdocs around the country are tearing their hair out trying to figure out how the hell this tax thing works. Nobody's allowed to give us tax advice, nor does our prestigious institution give us much useful information for trying to figure out the taxes ourselves. If we're told anything at all, we're told income from the fellowships we've worked so hard to get is taxable. Maybe some helpful older students let us know that we were actually supposed to be paying estimated taxes throughout the year, since there's no withholding on fellowships. Oops*.

If I taught last year, I'd receive a W-2 for some portion of my income. If I'm just doing research (at least at my university), the only vaguely IRS-y document I get is a 1098-T. But wait! They say the 1098-T is just informational. It's not meant to be a tax document. You can use it to get education tax credits if you're paying more tuition than you're receiving in scholarship, but it wasn’t really meant to apply to people like us, who are actually paid a full stipend in addition to tuition from fellowships. And the numbers on there don't even make any sense! How did they even calculate that tuition amount? How did they get that extra $11,000 they claim to have given me but which doesn't add up from my statements?

Fellow students have told me (echoing the university's constant reminder that they cannot actually give tax advice) you're not supposed to enter the 1098-T on TurboTax. Just go through your financial history, and pay tax on the amount you're actually paid. An official, still-not-tax-advice page for the university says health insurance costs (which they pay directly) count as fees required for enrollment and are thus not taxable. Phew, that reduces my tax burden a bit. But hold on, why can't I find any place in my statements that clearly says the amount that the university actually deposited in my bank account? I know it was there last year, before they revamped the online system to make everything look prettier and work on mobile…oh, I see, the original landing page is now a layer deeper.

Source: Laugh-Out-Loud Cats #2875, by Adam Koford/ApeLad.

Great, after back-calculating to try and make the numbers add up in every possible combination and never completely succeeding, at last I have a figure that actually reflects my income. Now how do I report this? Let's see, I didn't receive a W-2, didn't receive a 1099-MISC, didn't receive anything of use from my institution besides the 1098-T…aha, less common forms of income. Oh, but wait, this isn't earned income, even though the terms of my fellowship require me to be spending my time working on my research. If it were “earned”, I would've been able to contribute to a Roth IRA. But no, no tax-sheltered retirement savings for me, since whatever I get paid for working grad student hours each week to advance the progress of science isn't "earned". Keep clicking, and clicking, and clicking till I get to the last possible page: other forms of taxable income. There's a tiny text box for a description ("graduate student fellowship", I guess?) and an amount.

It seems so strange that even though I am so entrenched in the academic system, almost my entire income can be reduced to this one tiny box that relies on me to report it properly, or to a different box where I’d have to correct inaccurate documentation from my prestigious institution. It seems so strange that there are so many conflicting reports about the right way to enter your taxes. It seems so strange that nobody can agree on whether the cost of health insurance is also taxable.

Get it together, unnamed-but-obvious-from-context prestigious university! Give us accurate documentation. Collect withholding so we don’t have to deal with estimated taxes as if we were business owners, and so that we can actually get a 1099-MISC. Or at least tell us if we need to pay estimated taxes when we start, or whenever our withholding status changes**.

IRS, you’re not off the hook either! Make a clear decision on health insurance. Specifically, if we’re enrolled in university-offered insurance, and the premiums are paid for by the school or by a fellowship that requires full-time research work, they should not be included in taxable income, just as they aren’t for standard employees. While you’re at it, let’s call our stipends earned income, so we can be responsible and actually save for retirement. It’s ridiculous that graduate students would have to hire a tax advisor to figure out the correct way to pay taxes on our little stipends.

Part II: Not tax advice (disclaimer: I know nothing about taxes, don’t listen to me, this isn’t tax advice, remember?)

Specific to Stanford (figuring out how much you got paid):
Go into Axess, click on Student, scroll down to View Financial History By Term. Add up your refund/stipend checks from each quarter of last year. From what I understand, health insurance is not a qualified educational expense, which is why it doesn’t get included in Box 2 of the 1098-T, but according to the Fingate page (which Stanford says is still not tax advice, of course), it counts as a fee required for enrollment. After all, you can’t be enrolled without health insurance, and if you have Cardinal Care, the med school/subsidy are paying directly for it, rather than you paying out of pocket and turning it into an unqualified educational expense**. But maybe you’re not convinced (I’m not sure even the IRS is convinced one way or the other, based on my reading), in which case, go ahead and include the health insurance payments in your taxable income.

For everyone else:
Here’s a handy guide/website that might help you (though it is still “not tax advice”). It seems well sourced from the tax code, and may be helpful in figuring out what to do for those of you who have different forms or combinations of income than I did. It also clarifies some common misconceptions that get passed around about taxes (because nobody will give us tax advice). Take care though: for my situation, they say to use the 1098-T, but the tuition is calculated incorrectly, which would’ve made my income $6,000 higher than it should be, even if I include the health insurance costs as taxable income.

* Dear IRS, if you’re reading this, I did in fact pay my estimated taxes.
** This is an issue for many postdocs too - let's say you’ve just managed to snag yourself one of these prestigious NIH fellowships that will make your career. All of a sudden, you’ve gone from withholding (when you were paid by your PI's NIH grant) to being on the hook for estimated taxes, often with no warning from the university.