Someone received a w-2 from a grad school as a research assistant.
The w-2 withheld fed and home state tax(a different state from school's state) but no social security tax withheld. What's the difference between this kind of w-2 and regular w-2?
Thank you.
Generally speaking, when a student is working for their school, they are exempt from social security and medicare withholding. The income is considered a student stipend rather than compensation for work performed.
Also generally speaking, you are required to file a state tax return in the state where your permanent residence is located, that reports and pays tax on all your world-wide income, even if you earn income while temporarily working in another state. Depending on the rules of the specific state, you may also be required to file a state tax return in the state where you are living temporarily, and pay income tax only on income earned in that state. Since your home state also taxes you on the same income, it will give you a credit to offset taxes paid to the state where your school is located.
Of course, if your income is less than the filing threshold, you may not be required to file at all. What state is your permanent residence located, where is your school, and what is your total income for the year?
Opus 17,
Thank you very much for your explanation.
The school is in PA. Income withheld on the w2 is reported to MA. Total income level requires to file tax return, but don't need to file tax return for PA?
Thank you!
It depends, the way the school issued the W2 makes it Massachusetts income. According to the rules of the state of Pennsylvania, if you are a PA resident, nonresident or a part-year PA resident, you must file a 2023 PA tax return if you received total PA gross taxable income of $33 during 2023, even if no tax is due with your PA return. Filing a Pennsylvania return would depend on whether you are considered a PA resident, and if you had any other income.
If you would like more information, refer to the 2023 Pennsylvania Personal Income Tax Return Instructions.
@magicstar41000-y wrote:
Opus 17,
Thank you very much for your explanation.
The school is in PA. Income withheld on the w2 is reported to MA. Total income level requires to file tax return, but don't need to file tax return for PA?
Thank you!
If Massachusetts is your home state, you file a resident MA return and report this income along with any other income you have. (If your income is below the filing threshold for MA, you may not be required to file at all, but you would need to file to get a refund of the withheld taxes.)
Here is the page that discusses PA residency.
You are probably domiciled in MA, and your abode in PA is not permanent, so you are not a statutory resident. Therefore you are a non-resident of PA. You are required to file a non-resident return no matter how small your income is, even if you owe no tax. On your PA non-resident return, you only report your PA-source income, and not income from other states.
In Turbotax, you would prepare the PA non-resident return first, then the MA resident return. That way, any PA state you owe (if you owe it) will be applied as a credit to your MA return.
Because you need to file a federal and 2 state returns, you might not be able to use the free version of Turbotax, even though your income is small. If you find that you are being asked to pay, you may want to look into other software providers through the IRS FreeFile program.
Thank you Leticia. I am wondering why the school did not report the w-2 earning to PA if required to file?
With a regular w-2, the employer would report to both temporary and permanent States.
Thank you.
I want to add. Part of the stipend income paid tuition. The income on the w-2 is for living expenses. School did not issue any Tuition form. Can the tuition be deducted?
Thank you.
@magicstar41000-y wrote:
Thank you Leticia. I am wondering why the school did not report the w-2 earning to PA if required to file?
With a regular w-2, the employer would report to both temporary and permanent States.
Thank you.
Not exactly. The employer withholds taxes wherever you tell them to. If you want taxes withheld in two states, you have to ask for it.
@magicstar41000-y wrote:
I want to add. Part of the stipend income paid tuition. The income on the w-2 is for living expenses. School did not issue any Tuition form. Can the tuition be deducted?
Thank you.
You can't claim any credits for tuition that was paid for you by someone else with tax-free money.
I see. But this "tax-free money" is earned by working as a research assistant. It is better to be taxed then pay the tuition then. I am not clear how this works.
No, the tuition was paid by the graduate school and is not deductible. The living expenses in your situation are taxable.
As far as whether the tuition deduction would be better depends on the facts and circumstances in each case. See Publication 970 for more information. See Coordination with Pell grants and other scholarships in chapter 2 and chapter 3.
@magicstar41000-y wrote:
I see. But this "tax-free money" is earned by working as a research assistant. It is better to be taxed then pay the tuition then. I am not clear how this works.
It doesn't matter. For purposes of the tax law, you can't take any tax benefit for an expense you did not pay for with taxable money. You might say, it's better to get (let's say) $12,000 in cash, than $6000 in cash plus a $6000 tuition discount (because the tax on the income would be less than the credit you could claim by paying tuition). But that's not how it works.
There are some situations where you can work around this problem. For example, if your church gave your child a $5000 scholarship, your child would have a choice of applying it to tuition or room and board. If applied to tuition, it is tax free, but you can't claim a credit since you didn't pay the tuition with taxable money. If you apply the scholarship to room and board, it becomes taxable, but then you can claim a tuition tax credit since you are paying the tuition with other, taxable (or after-tax) dollars. (Basically, if you have a pocket with scholarship money and a pocket with your own money, you can decide which expense you pay from which pocket.)
However, it seems in this case that your child's school sponsored the research program and paid a stipend plus a scholarship, and did not issue a 1098 tuition statement. That prevents you from using this kind of work-around, because a 1098 is an absolute requirement (among other reasons). Essentially, your child's school gave you a tuition discount, so you paid less or nothing. That's different than deciding which pocket to pay the tuition from. You never paid tuition, so you can't claim a credit. And if you did pay room and board, those costs are not eligible for college tax breaks.
Hi Opus 17,
Thank you for your examples. I have 2 follow ups as below:
Part 1. I am not clear about the deal with the school. You said "stipend plus a scholarship.“ Do you mean the w2 earned is the "stipend," the" tuition” part is the scholarship"?
I don't know if the earnings on w2 had already subtracted from the tuition. For example, if earned $50,000 from working as a RA(hourly rate * hours worked), w2 showed $30,000, the other $20,000 had deducted before tax towards the tuition. So this situation is different from the Church example, no free money here.
The above are not exact numbers
Part 2. I just got an update that a 1098-T was sent by the school. Box 1 (payments received for tuition and expenses) say $50,000, box 5(scholarship or grants or grants), say $30,000.
After entering into theTurbo-tax software, it puts $30,000 on schedule 1 ( scholarship not reported on w-2) and 1040 as additional income. I thought scholarship is not taxable!!! Turbotax live helper could not understand this either.
When w2 earning is added to the scholarship amount in box5, the sum is more than the amount in Box 1 of the1098-T - about $30,000.
Very confusing! What's the relationship between the w2, box1 and box5 of the 1098T.
Please explain.
Thank you very much!
Scholarships not used for "qualified" expenses (tuition and required fees) is taxable. A stipend or scholarship designated or used for living expenses is taxable income.
It is not usual for the same income to be reported on a W-2 as on a 1098 in the schoalrship section, but when it is the income should only be reported once.
If part of the income reported on the W-2 was withheld for tuition (pre-tax) and the same income and tuition is also reported on the 1098-T then you would just not enter the 1098-T.
If the W-2 income didn't deduct the tuition pre-tax, then the tuition is reported as an expense but you wouldn't enter the scholarship from box 5 (assuming it's the same amount on the W-2).
Each item - the income and the tuition expense should only be accounted for once. If the tuition is deducted from the Box 1 income on the W-2 then the 1098-T should just be ignored.
@magicstar41000-y wrote:
We are obviously not working with all the facts.
Your child has a W-2 for working as a graduate research assistant. How much was the wages? Your child has a 1098-T showing box 1 (tuition payments received) of $50,000 and box 3 (scholarships) of $30,000.
What type of program is your child enrolled in? Is your child a graduate student in a STEM field, which often results in a tuition waiver plus a stipend? Or is your child required to pay tuition? Does your child receive a scholarship?
Of the $50,000 that the school reports as tuition received, did you or your child pay any part of that, with cash out of pocket or with student or parent loans?
" For example, if earned $50,000 from working as a RA(hourly rate * hours worked), w2 showed $30,000, the other $20,000 had deducted before tax towards the tuition."
If that is a real example, it is probably not legal. You are creating examples that can't exist under the law. It would be better to explain your actual circumstances.
Let me go back to some basics, at least as far as STEM is concerned. I work at a major university and I have grad students in my lab. The university stipend (paid to the student) is about $30,000 (give or take). The students are required to perform research to get their OhD. The school also "charges" about $16,000 in tuition, but that is waived--paid by the Dean's office in the first year and paid by the student's faculty mentor in the remaining years (unless the student gets a grant of some kind). In other words, the school pays itself the tuition, by taking the money from the faculty mentor's funds and putting it into the graduate program's funds.
In this situation, the stipend is taxable income, but not subject to social security and medicare tax. The tuition waiver essentially does not exist. The school pays tuition to itself, and there is no way you can use the waived tuition to claim any kind of educational tax credit, either in the parents name or the students name.
On the other hand, your child might be a graduate student in English (for example) where students do not receive tuition waivers and are required to pay tuition. The grad assistant pay might be to help the professor take notes and write a book, which is not a requirement to get the advanced degree your child is working toward. In that case we need to know more about what tuition you or your child actually paid and what the W-2 income was actually for.
There is also something wrong if you are entering a 1098 showing that the school recieved $50,000 in tuition, that your child received $30,000 in scholarships, and that $30,000 is taxable income. You likely entered something incorrectly or answered one of the questions wrong.
Thank you again for your detailed explanation.
Yes, It's for an engineering degree. Like you mentioned, the university stipend (paid to the student) about $30,000- amount on the w2. The students are required to perform research to get their graduate degree. The school also "charges" about $X in tuition(Is box1 the tuition amount?) . On the student pay stubs, they showed the tuition amount, what's left was student's income. (confusing)
"In this situation, the stipend is taxable income, but not subject to social security and medicare tax." - That's correct, the w2 earnings.
"The tuition waiver essentially does not exist. The school pays tuition to itself, and there is no way you can use the waived tuition to claim any kind of educational tax credit, either in the parents name or the students name." - That's fine. Why the the school issue a 1098-T to complicate the issue?
I entered the information correctly on form 1098-T in Box 1 and and 5 as it asked. It taxed on the scholarship amount? Confusing!
Thank you again!
@magicstar41000-y wrote:
Thank you again for your detailed explanation.
Yes, It's for an engineering degree. Like you mentioned, the university stipend (paid to the student) about $30,000- amount on the w2. The students are required to perform research to get their graduate degree. The school also "charges" about $X in tuition(Is box1 the tuition amount?) . On the student pay stubs, they showed the tuition amount, what's left was student's income. (confusing)
"In this situation, the stipend is taxable income, but not subject to social security and medicare tax." - That's correct, the w2 earnings.
"The tuition waiver essentially does not exist. The school pays tuition to itself, and there is no way you can use the waived tuition to claim any kind of educational tax credit, either in the parents name or the students name." - That's fine. Why the the school issue a 1098-T to complicate the issue?
I entered the information correctly on form 1098-T in Box 1 and and 5 as it asked. It taxed on the scholarship amount? Confusing!
Thank you again!
You may need to contact the school. The 1098 for now shows that the school received $50,000 in tuition and the student received $30,000 in fellowship income. If you enter that correctly (I tested it in my program), then Turbotax will think that the student personally paid the other $20,000 of tuition, resulting in eligibility for the Lifetime Learning credit. That is incorrect in your situation no matter what the 1098 says, and I don't know why it is written that way. I also could not get the program to charge tax on the $30,000 of box 5 income. You may have checked a box or answered a question that makes the program think your total tuition was $20,000 which makes the $30,000 (the amount over tuition) taxable. But that is also not the case for your situation.
I also don't know what you mean by "the $50,000 is on the pay stub". But it doesn't really matter what is on the pay stub, the school may just be trying an awkward way to illustrate the total cost/benefit of the graduate program. Only the W-2 counts because that is what is reported to the IRS.
What I would do is enter the W-2 only and ignore/delete the 1098. Your child is not eligible for any tuition tax benefits unless they paid tuition out of their own pocket or from loans, no matter what the 1098 says.
Then going back to your original question, if your child is domiciled in Mass (permanent residence) and is a student in PA, they file a PA non-resident income tax return to report and pay tax on their PA-source income. They will likely owe quite a bit if there was no PA withholding. Then they file a Mass resident return to report and pay tax on all their world-wide income (the graduate stipend plus anything else). Mass will give them a credit for taxes paid to PA, so they will probably get a refund from Mass. The credit works like this: suppose the PA tax on the income is $1000 and the Mass tax is $1500 (Mass taxes are higher than PA). Your child will pay $1000 to PA, will get a $1000 credit on the Mass return and pay the leftover $500. If their withholding is higher, they get a refund.
Your child can also contact the payroll department at their school and add PA withholding or change from Mass to PA withholding if they want, for next year.
@Hal_Al Do you have any thoughts on how the school is reporting tuition and the graduate stipend, and why the taxpayer might be showing $30,000 of excess scholarship income when entering the 1098?
Q. Do you have any thoughts on how the school is reporting tuition and the graduate stipend?
A. I think it's more straight forward than the long discussion implies. They treated the non tuition part of the stipend as wages and put it on the W-2. Just enter the W-2 as is.
Q. Why the taxpayer might be showing $30,000 of excess scholarship income when entering the 1098?
A. Simple answer: user error. Most likely culprit: duplication when asked if any of the scholarship was reported on a W-2 or 1099. Since poster is not eligible for a credit, just delete the 1098-T
@Opus 17 said
"What I would do is enter the W-2 only and ignore/delete the 1098. Your child is not eligible for any tuition tax benefits unless they paid tuition out of their own pocket or from loans, no matter what the 1098 says."
I think that's right in this case; the tuition was paid by restricted tax free scholarship (actually [apparently] "tuition remission"), because that part was not included in box 1 of the W-2.
Thank you very much for everyone's help. I am sorry for the confusions I may have caused. I did not have all the facts on hand before. I am much cleared now.
Hal_AI, you are correct about the w2 part - amount of stipend.
As for the 1098-T part, Turbotax did ask if the scholarship was reported on w2. It was not reported on the w2 so it treated as extra income. The w2 and the scholarship amount are not the same.
I got a copy of the pay stub. It has few sections. Under the Earnings section：
Stipend -PA tax exempt $$$(1)
Student fee(Nontaxable) $$$(2)
Student Tuition $$$(3)
Under Post Tax Deductions section, it lists
Student fee deduction $$$(4)
Tuition deduction$$$(5)
(4) and (5) are the same as (2) and (3). They are deducted from earnings. Last section on the pay stub is the taxable wages $$$(6) which is the same as the Stipend amount(1) in the earnings section.
Since it says "PA tax exempt" so the student is not required to file PA tax return, correct? Taxes are withheld for federal, MA state and PA LST -PITTS.
Form 1098-T is to get tax credit. Since no credit will be given to grad student so delete it. I thought 1098-T needs to be reported.
Again, thank you all for your help.
No, please stop. You are making this way too complicated.
If you want to understand why the school did things a certain way, ask the school, only they can tell you.
For your child's income taxes, you should:
1. Ignore the pay stub. The only thing that counts is the W-2.
2. Ignore the 1098. Your child did not pay any tuition, therefore they are not entitled to any tax credits.
3. As to whether the income is taxable in PA, you must consult the PA instructions. In most states, this would be taxable income on a non-resident return. However, after doing some extensive research (you're welcome) I found this.
Opus 17,
I appreciate your research, but I don't understand what do you mean by"No. Please stop. " I did not make things complicated. I understand the pay stubs. I am cleared now. I have no questions about it. I described it in my last post was because you/someone said "we are not working with the facts" The w2 and the scholarship amounts are from the pay stubs.
On the pay stub, it indicated "Stipend - PA tax exempt." W-2 $$$ is the Stipend $$$ amount.
I read your long research. The stipend qualifies for PA-tax exempt. But it's complicated where it wants you to show "blablabla."
School knows the best. If they say it's tax exempt, it's tax exempt. We just follow the school's direction.
Thank you again!