Grad school research assitant's w2

[magicstar41000-y]

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.

[Opus 17]

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?

[magicstar41000-y]

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!

[LeticiaF1]

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 

[Opus 17]

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@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!

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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.

https://www.revenue.pa.gov/formsandpublications/papersonalincometaxguide/pages/brief-overview-filing...

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. 

[magicstar41000-y]

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.

[magicstar41000-y]

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.

[Opus 17]

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@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.

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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. 

[Opus 17]

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@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.

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You can't claim any credits for tuition that was paid for you by someone else with tax-free money.  

[magicstar41000-y]

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. 

[DianeW777]

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 

[Opus 17]

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@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. 

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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.  

[magicstar41000-y]

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!

[SusanY1]

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.  

[Opus 17]

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@magicstar41000-y wrote:

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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.