Grad school research assitant's w2

[magicstar41000-y]

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!

[Opus 17]

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@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!

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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?

[Hal_Al]

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. 

[magicstar41000-y]

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. 

[Opus 17]

@magicstar41000-y 

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.

Stipends

• Pennsylvania-Taxable
  Stipends paid to medical interns and residents pursuant to an internship or residency program that conforms to the Essentials of an Approved Internship or the Essentials of an Approved Residency as established by the American Medical Association are taxable.
• Pennsylvania Nontaxable
  Fellowship awards and stipends do not constitute taxable compensation for services if the recipient is required to apply his skill and training to advance research, creative work, or some other project or activity, and the recipient can show that:
  • The benefits resulting from the services of the recipient are so minimal, given the actual services performed or expected to be performed, that they constitute no realistic basis for compensation by the institution sponsoring the fellowship or stipend; or
  • The activities of the recipient are so closely and directly supervised and immediately controlled by regular faculty members so as to constitute a burden on the institution which would offset any benefit it receives from the recipient's activities; or
  • The recipient is a candidate for a degree and the same activities are required for all candidates for that degree as a condition for receiving such a degree.

[magicstar41000-y]

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!