47
Education, Taxes, & Benefits Duke University August 22, 2017
Education, Taxes, & BenefitsDuke 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 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.
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
DocumentationType of Income
W2Wages
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
1098TDuke administered financial aid posted directly to the Bursar Account
(Does not include financial aid administered by third parties)
1042SEarnings that fall within the scope of a tax treaty, scholarships, fellowships, non-
compensatory 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
Issued by Payroll Services to students
…………..who are US citizens, permanent residents, or residents for tax purposes,
…………who receive scholarships or fellowships through the non-compensatory 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.
Courtesy Letter
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
1ST QTR APR 15, 2017
2ND QTR JUN 15, 2017
3RD QTR SEP 15, 2017
4TH QTR JAN 17, 2018
TAX PAYMENTS
RESOURCEShttp://www.irs.gov/pub/irs-pdf/p970.pdf
RESOURCEShttp://www.personalfinance.duke.edu
