Tuition Remission for Medical Student Filing Jointly

[Sferrer9596]

Thank you in advance for your help! 

My husband is a full time medical student as of January of this year (2023). A couple months ago, I was fortunate enough to get a staff position at the university where he goes to school. One of the benefits of the job is that after I work here for a year my spouse can receive 50% tuition remission. Medical school is insanely expensive, so 50% off would literally be about a $20k worth. I know I have to pay taxes on this every semester (they break up the total gift amount's taxes and spread it out over each of my paychecks), but I have two questions for anyone who may have some insight.  If it helps, we live in Missouri, I currently make around $44k, he is not working at all so I am the sole income earner this year. 

1. Will this kind of benefit be extremely expensive for me in the short term? I am nervous that literally increasing my taxable income by 50% without actually receiving a pay raise will be unsustainable for us since we only have my income and his student loans. We max out his federal loans as it is. If this does have a significant impact on us, I am hopeful we can work with our Financial Aid office to increase the amount of loans we can take out just to cover the taxes for now. But I really don't know if itll be as bad as I am imagining. 

2. I am currently in repayment on my own student loans and as of right now I do not have to pay anything (I am on SAVE right now) but I am not sure if the tuition remission "income" will be used to determine the payment I am required to make. 

I hate that I am questioning if something that is supposed to save us money is something that we can afford, but I also know that most people who get tuition remission are not getting $20k a year so I acknowledge that that plays a huge part of this. 

Thank you so much for your time!

[Bsch4477]

Think of it as you won $20,000 in a lottery which is a good thing. 

[NCperson · Accepted solution]

@Sferrer9596 let's look at the 'worst case scenario;

first, it is unclear if the $20,000 is per year of medical school or $20,000 spread over 4 years. 

If your income is $44,000 less the standard deduction of $27,700, means the taxable income is $16,300 and that puts you in the 10% tax bracket so your tax is $1,630.

If your income is $64,000 (adding in the $20,000 benefit per year) less the standard deduction of $27,700, means the taxable income is $36,300 and that puts you in the 12% tax bracket so your tax is $3,916.

so the tax burden of a $20,000 benefit is $2286 of additional tax.

(If the benefit is $5,000 per year, then the tax on $49,000 is $2,130, so the additional tax is $500. )

Don't forget any state taxes. 

this is a real gift, but don't panic on the debt or the cash flow. it should work out in spades post residency.  You two have a 6-7 year road ahead of you, but it will pay off hansomely at that point. 

On your first question, what you may be missing is that your husband shouldn't need to max out his federal loans.   So, if it is a $20,000 per year benefit, that means your husband should be able to REDUCE what he borrows by around $18,000 (his medical school costs are $20,000 less but you need the cash to pay the tax on that benefit).  You could actually 'splurge a little' and create some living money by not reducing the student loan by the whole $18,000.  If you reduced what he borrows by let's say, $15,000, that leaves $2,000 to pay the additional tax and $3,000 just to help make ends meet. 

2) on the 2nd question , check with a student loan couselor at Studentaid.gov.  Your income may still be low enough that it may not impact your student loan payments. (and if it does, borrow some of the money from your husband's medical loans - nothing says that if his tuition is reduced by $20,000, he has to reduce what he borrows by the same $20,000. 

does that make sense?

DON'T PANIC 😉