fellowship

How Winning Fellowships Forced This Grad Student to Take Out Student Loans

January 6, 2020 by Lourdes Bobbio

In this episode, Emily interviews Dessie Clark, a doctoral candidate in Community Sustainability at Michigan State University. In 2018, Dessie received a few small fellowships for conference travel and a couple months of stipend income. In 2019, the financial aid office told her she had been “over-awarded” and had to pay the travel fellowship money back. Dessie took out student loans to pay that bill and then set up a payment plan with the IRS when she couldn’t pay the additional tax due on the fellowships. Dessie shares the steps she takes now when receiving fellowships so that she does not become over-awarded and how to prepare for tax time as a fellowship recipient.

Links Mentioned in This Episode

Teaser

00:00 Dessie: Outside of academia, people wouldn’t hesitate to ask questions about their paycheck, right? And so we need to kind of be thinking about it the same way. If something was different on your paycheck, you would ask why or what’s going on and how you need to deal with it. So just not being afraid to try and talk to people about what’s going on with you so you don’t get in a bind.

Introduction

00:22 Emily: Welcome to the Personal Finance for PhDs podcast, higher education in personal finance. I’m your host, Dr. Emily Roberts. This is season five episode one and today my guest is Dessie Clark, a doctoral candidate and community sustainability at Michigan State University. In 2018, Dessie received several thousand dollars in fellowship income for travel awards and a couple months of stipend income. In 2019, she received a bill from the university for the amount of the travel awards. Apparently, she had become overawarded, a term that was totally new to me., Dessie he took out student loans to pay back the university, and to add insult to injury, faced a higher tax bill that season as well. Dessie relays what she had learned on how to avoid becoming over awarded and her advice for all graduate students receiving stipends. Without further ado, here’s my interview with Dessie Clark.

Will You Please Introduce Yourself Further?

01:19 Emily: I have joining me on the podcast today Dessie Clark, who is a graduate student and is going to be telling us about being awarded fellowships as a graduate student and some of the unexpected downsides that can come with being awarded fellowships, which is of course a wonderful thing, but in Dessie’s case they caused a few other complications. Dessie, thank you so much for joining us on the podcast today and will you please tell us a little bit about yourself?

01:45 Dessie: My name is Dessie Clark and I am a doctoral candidate in community sustainability at Michigan State University. I actually got my master’s degree at Vanderbilt University in community development and action. And then I moved to Michigan to finish out my PhD.

02:01 Emily: Great. And how long have you been at Michigan State?

02:04 Dessie: I have been at Michigan State for four years.

02:09 Emily: Okay. So I won’t ask you when you’re finishing, but I’ll just say soon, you’re finishing soon.

02:13 Dessie: Yeah, hopefully this year, maybe next year, maybe, you know, whenever.

Funding During the PhD:

02:16 Emily: Yeah. So can you tell us a bit how your funding has worked since you’ve been doing your PhD?

02:22 Dessie: I’ve mostly been funded as a research assistant, so that provides coverage for tuition and then a stipend to live on. There have been a couple of summers where I’ve taught as an instructor, but for the most part it’s been RAs. And then there have been some brief moments in time where fellowships have also come into play, which is what I wanted to talk about today.

02:43 Emily: Yeah. Please elaborate about that. When did you win fellowships and maybe what amounts were they, those kinds of details?

02:52 Dessie: I think one of the things that’s important is that I didn’t necessarily know that I was getting fellowships. How this came into play for me was I had friends that had gotten fellowships and they had talked about how they were unaware of the tax implications. So I knew when I was going to apply for fellowships or asked for them that there would be tax implications there. But for me, I was actually receiving fellowships in the form of travel awards. So there were multiple times where I applied to go to conferences, and when I was awarded that travel money, I wasn’t aware that they were fellowships. So I’ve won I guess, fellowships of several thousand dollars for travel. Then there was a brief time where, I needed to change labs and so fellowships were used to fund me in my transition.

03:40 Emily: Okay. So definitely for the travel awards, we’re only talking about thousand, few thousand dollars here and there. Seemingly a relatively small amount of money, right? And then when you were switching labs, was it a semester’s worth of funding or how long was that?

03:54 Dessie: It was still relatively small. It was a couple of thousand dollars, but all of these fellowships awards actually happened in the same semester, so by the end it ended up being like $7,000 or $8,000.

04:07 Emily: Oh, okay. When they hit all at once, it really does add up in that case. Okay. So yeah, you didn’t really know that that was what you were receiving. So what happened? You get this money and it’s all good, right?

04:19 Dessie: Right. So I get this money and I’m really excited, I can afford to go to these conferences, I’m able to switch labs. But one of the things that I didn’t know is that they were fellowships, so I was kind of surprised two-fold. The first thing that happened that let me know that something wasn’t going quite right was that — this was in the fall of 2018 — so when I was going to start school in spring 2019, I got a bill from the university that said, “you owe us money, you’ve been over awarded.” I had no idea what that meant, but what I understand now is that every student has a cap on what they’re allowed to receive for education-related expenses. They had decided that this amount of money that I had received for travel had thrown me over that, so I needed to pay back university. That was kind of the first thing I noticed.

Fellowship Cap and Being Over-awarded

05:05 Emily: Let me pause there, because this term over awarded is new to me as well. What are you paying back to the university?

05:16 Dessie: What they were charging me ended up being the sum total of those travel award costs. There’s something that you can do to kind of help with this. Like I said, every student has a cap for how much money they’re allowed to receive, but one of the things that your department can do is they can write a letter saying, “This travel money is necessary for this person’s education. This is advancing their education or contributing in some way and this money is going towards that. It’s nothing extra. It’s not something we can go shopping on. This is money for the students’ education.” I didn’t know that that was something that could be done or needed to be done, so it wasn’t done in my case. I got this bill and it happened to be for the exact amount that I had received for travel awards. I found out through talking to financial aid that basically those things have been passed through as fellowships and because of how they were categorized, I got more money from the university than I was allowed to and so I needed to pay it back.

06:12 Emily: So it sounds like your stipend had been paid by your RA position and this supplemental fellowship, but those were kind of evening out to be what you’re allowed to be paid. And then these travel awards were over and above that and they were like, you’re not allowed to receive this money. This is literally the first time I’ve heard of this. I don’t know if maybe this is unique to your university or your department or maybe in all these cases, other people write these letters, their advisors write these letters that you’re talking about. I’m not sure how that works out, but this is really the first time I’m hearing about this, so it’s definitely raising like some major red flags for me.

06:46 Dessie: Yes. So from my understanding, and this is just what I’ve been told, this kind of cap exists for every student that is at a university, but I don’t know if it’s just how my university chose to handle it, or if this is happening a lot more than people know about, but basically what happened was I was over whatever that cap is. So it became a huge issue because now I’m sitting here before I can start school being told that I was thousands of dollars.

07:15 Emily: Right, exactly. So what did you do?

07:19 Dessie: What I did was what I didn’t want to do, I took out student loans and they subtract it from that.

07:24 Emily: So you took out student loans to pay the university for money that you had won that you used go to conferences. This Is bananas. This situation makes no sense. I’m really glad that you volunteered to come on the podcast to talk about this because the situation I’ve heard in the past for other students is that maybe they have a fellowship coming from the university or maybe they have an RA position or TA, something like that. Then they win a fellowship that’ll pay like their stipend. And a lot of students think, “I am in the money now.” They think getting that fellowship on top of the existing funding for their RA position or whatever it was. That is almost universally not the case. It is possible that you may end up being paid more than you were going to in the first place, but it’s not going to be double what your stipend was to begin with. And so there’s plenty of people who are caught by surprise by “what I just won funding, what do you mean you just take away my other funding?” No, that’s definitely how that works everywhere. There may be some room for negotiation and so forth, but that’s how the standard situation works. But I’m really glad to hear about your situation as well. So you know, now that you have been through the whole thing, what could have been done on your behalf and wasn’t. I don’t know. This is something that I’ve never heard of, of a student having a proactively ask for, so of course you wouldn’t have known, but I guess in the future, anyone listening who receives extra fellowships in some manner, make sure that you’re not going to run into any kind of cap, or whatever exceptions need to be made are going to be made on your behalf. Is that your advice?

Proactive Steps to Avoid Getting Over-awarded

08:54 Dessie: Yes, that is definitely my advice. I think something else too that really ties into this, that I experienced, is I got another fellowship for travel in spring and of course this time I was like, “hi, can you please write this letter and send it to financial aid? “And they were able to do that. But I came upon a situation this summer where there was something the university was going to pay for and they weren’t able to pay for it the way that they want it to. I had gone to my college and I said, I need help figuring out how this thing is going to get paid for, but it can’t be a fellowship because I’m scared I’m going to get over awarded again and I’m going to owe it. My college was really great at hearing that concern and trying to work with me on it, but what ended up happening in the meantime is that the graduate school at my university granted it as a fellowship anyway. One of the things that I think is a kind of a broader issue is that when we’re getting loans or we’re getting grants, we have to accept them and there’s usually some paperwork that we have to go through promising whatever and making sure we fully understand the impacts, but I was awarded a fellowship without my permission basically. I think that the school has figured it out, so that way I won’t be over awarded and this won’t impact me, but I also think that’s why I said at the beginning, it’s really important to know how things are being classified and categorized on your behalf because maybe something is a fix, but then all of a sudden six months down the road you’re being asked to pay it back. I think keeping an eye on that is really important.

10:15 Emily: Yeah. I mean, it sounds like you were taking the proactive steps the second time around that you knew to take, and yet, as you just said, they can just push these things through into your student account and there’s no process around it. It’s totally on their end and they have control over it. But I guess, did it just end up being that they just took it back like, “Oh, we gave it to you, now we’re going to take it back and award you the money in some other way?”

10:40 Dessie: They ended up just doing what I was talking about before and doing the right amount of paperwork to explain why this is an educational expense and all of that. I think it was handled because they knew that there were some extra steps that needed to be taken. But I think another thing too is you asked me how I found out about all this. Like so many other students at tax time, it really became a “you owe this money.” I think too, it’s easy for us to just think like, well this was only, you know, $1,000 here or $1,000 there. But it really adds up. And for most graduate students, we’re not in a super comfortable financial place. So even a surprise tax of a couple of hundred dollars can really set you back.

11:20 Emily: Yeah, and sometimes I think it’s easy to forget the academic year and the calendar year don’t line up, right? So you could be receiving fellowships maybe in two different academic years, but if they fall in the same calendar year, then it’s all going to add up at that year-end tax return.

Commercial

11:40 Emily: Emily here for a brief interlude. Tax season is upon us and while no one loves this time of year, it’s particularly difficult for post-bac fellows, funded grad students, and postdoc fellows. Even professional tax preparers are often thrown for a loop by our unique tax situation. And don’t get me started on tax software. I provide tons of support at this time of year for PhD trainees preparing their tax returns. From free articles and videos, to paid at-your-own-pace workshops, to live seminars and webinars for universities and research institutes. The best place to go to check out all of this material is pfforphds.com/tax that’s P F F O R P H D dot com slash T A X. Don’t struggle through tax season on your own. Visit my website for the exact information you need in the most efficient form available. Now back to the interview.

Tax Consequences of Being Over-awarded

12:44 Emily: Okay, not only did you, you know — Hey, you received award funding. Awesome. Got that. Oh no, you have to pay it back to the school. Ridiculous. You have to take out student loans, do that. So essentially, with some middlemen, you were just taking out student loans to go to conferences, which is probably not a decision, it sounds like, you would have made, had you known that was going to be outcome. On top of that, travel and research is not a qualified education expense for making fellowships tax free. So you end up with this tax bill on top of all the other stuff that’s happening. How did that play out?

13:19 Dessie: I think one of the things that I knew when I was changing labs is that I knew that a portion of that fellowship money, I knew it was untaxed* and I was gonna need it. So I was able to put that aside. What surprised me is when I sat down with my accountant and she put two and two together, that all these other things had been categorized as fellowships, the amount I had set aside to pay taxes on was not nearly the amount of money that I needed. That was obviously a huge strain. I’m lucky enough that I have a partner who works, but we did end up having to go on a payment plan to the IRS because I just couldn’t afford to come out of pocket the amount that I owed.

[* By ‘untaxed,’ Dessie is referring to the fact that income tax was not withheld for her on this portion of her income, not necessarily that it is tax-free.]

13:57 Emily: At the point when you were working with your tax preparer, at what point in tax season was that? Were you getting ready to file and you found out that, “Oh wait, I’m going to owe more than I had set aside?”

14:08 Dessie: It was right at the end. There was no fixing it. I getting ready to file taxes and she’s like, this is not looking good, and it was what it was at that point.

14:18 Emily: Not all the listeners may know, but some people might hear, maybe from their parents or something, about filing extensions. So they get another, I don’t know, six months or something to file your tax return. You do not get an extension on actually the tax that you owe. You only get the extension on the return. So if you’re finding out in March or April that you owe a tax bill and you’re not prepared to pay it, as you said, graduate students typically live without much margin in their lives. If you find that you owe a tax but you’re not prepared to pay it, really probably the best thing to do is what you did, which is to go on a payment plan with the IRS. A lot of people would say, “Oh my gosh, the IRS, I’m so afraid I don’t want to talk to them. I don’t want to deal with them,” but actually that’s the worst step you can take, is not to talk to them. Did the payment plan work out okay? Did it end up being all right that you could pay a little bit over time?

15:06 Dessie: I’m still on it to this day. I owed a chunk and there’s only so much I could put towards it per month. So yeah, it has worked out. I’m making my payments so I haven’t gotten in trouble with the IRS, but it isn’t a new bill now every month that I have to pay. I think too, just thinking about this calendar year and the implications for next tax season, I think now I’m just very closely watching anything financially that comes through the school just to make sure I don’t get into this situation again. I know now there are ways that your department or your college can help you, and making sure that these expenses are processed the way they should be as true education expenses and not as extra in your life. And just keeping an eye on that. I think especially as I get into the fall, I will definitely be following up with my administrators and saying, “Hey, just want to make sure I see this here. Was there something that went with this to make sure that I’m not getting a bill for being over-awarded again, or I’m not having any more tax implications than I already know I will have.”

Saving Money for Taxes When Your Fellowships Do Not Have Tax Withheld

16:08 Emily: Right. At this point, now that you’re so aware and you’re so proactive about everything, are you filing quarterly estimated tax or does your additional tax due not rise to that level of necessity?

16:22 Dessie: It doesn’t rise to that level, but I am always putting stuff aside. Even when there are things that should be categorized in a way that I won’t have to worry about that, I’m still always just taking a certain percentage and putting it aside, because I think in my situation, the worst case scenario is to have what happened this year and be totally surprised and unprepared, because that’s exactly what happened.

16:42 Emily: Can you tell the listeners a little bit about your system for setting money aside? Because maybe they want to know, mechanically, how you do that.

16:48 Dessie: Yeah. I am not an accountant so I don’t have this down to any kind of science. It’s just kind of what I’ve found has worked for me. So anytime that I get any kind of award through the school, whether it be for travel or whatever else, it could be research money, I always take about 30% of that and I put it in a savings account. And that seems to be kind of a pretty safe estimate of you definitely won’t need to pay more than that, and so I think that’s been my system now. Even when I make requests for money, I always keep that in mind, because I think something that I’ve watched other students go through is they ask for exactly what they need, forgetting about that tax buffer. And so you might end up short or paying back necessary money later.

17:33 Emily: Yeah, good idea. I do think 30% is a very good margin, probably more than you’ll need, but better to be on the safe side than on the sorry side, as you definitely found out. Do you have like a separate savings account that you use for that or something?

17:46 Dessie: Yes, I have a savings account that I just don’t touch. I kind of joke with my partner, that it’s like the savings account that you don’t use as a savings account. There is no level of emergency that could make me touch that money. I pretend it’s not there because for all intents and purposes, it’s not mine. It’s the government’s, and I don’t want to end up in a situation. I mean it’s August, right? And I’m still on a payment plan for this past year’s taxes. I don’t want to have to do that again.

18:12 Emily: Yeah, I do the exact same thing. When I was in graduate school, some years…Well, I guess it wasn’t in graduate school, but it was when I did my postbac, taxes weren’t being withheld. I had to pay quarterly estimated tax at that time. I started doing the exact same thing. I set up a separate savings account, I have it nicknamed tax, put money in there as I get money to come in, withdraw from it as I was paying quarterly estimated tax. But I wanted to say that I do the exact same thing as you, which is that I don’t think about that tax savings account as being my money. Right now, when I’m self employed, I also have the responsibility of paying quarterly estimated tax. And so I actually calculate my, or our family’s net worth every month, on the first of the month, and so I calculate two numbers, which is one my technical net worth, which includes the tax money in it, and then what I label as my true net worth, which subtracts that tax savings account balance out. And I say, “Nope, I don’t even think of it as being mine right now because, as you said, I know I just have to hand it over to the IRS in a few months.” I don’t want to think of it as accessible at all, in the meantime. So yeah, thanks for sharing about that.

Final Words of Advice

19:16 Emily: Is there any other final advice around the situation that you would want to tell someone else so they don’t get into the same kind of problems that you did?

19:24 Dessie: Yeah, just kind of recapping what I said. So I think, of course, the conversation that fellowships are untaxed* is just a broader conversation we need to be having in general because I don’t think a lot of people know that. But again, just monitoring how things are being processed for you and if they’re technically being categorized as a fellowship. Then, I think that for the most part students are pretty safe. I don’t want to create mass panic as far as this cap goes. If you’re just talking about you just have an RA or you know, just the little student loans or you just have a TA. I think where you start to get near this cap is when you’re doing a lot of research awards and travel awards and teaching where it’s on top of what you’re already getting. I think for students that might have multiple things going on, like I clearly had, making sure you’re having a conversation and knowing where that line is so that way you don’t cross it because the way that they balance their books is you’re not going to know until you’re far down the road and the money is already spent. It’s going to be the next semester. So just keeping an eye on that and honestly just reaching out and asking your financial aid office and saying “I know that there’s a certain amount of aid that we’re allowed to get. What is my number?” So you can kind of monitor it yourself because I really think that for most people, you’re better off saying, “No, I’m not going to take that award this semester. No, I’m not going to get this or do this now” and waiting, so you don’t cross that line and end up having the money need to be paid back.

[* By ‘untaxed,’ Dessie is referring to the fact that income tax was not withheld for her on this portion of her income, not necessarily that it is tax-free.]

20:44 Emily: Yeah. Or just be aware, as you were saying earlier, that these letters or whatever can be written so that the money goes on top. So it sounds like, at least your university, your department, it wouldn’t be like, oh, your advisor just wants to pay you more or someone wants to just like give you a fellowship. You’re going to run into problems with that. It has to be something that’s justifiable under their system for raising their cap on an exception basis to allow that award to go through.

21:10 Dessie: Right, and I think too, just noting that the people that work in financial aid may not be as familiar with why research money or why conference money is an educational expense. So things that you might see and go through and you think, “Oh yeah, that’s totally an expense for my education. Anyone would see that?” No, you might have to justify it and they might need, you know, justification from your department on why this is important for your education.

21:32 Emily: Yeah. And I will just add that financial aid professionals and so forth, they’re not going to touch this tax issue with you. They’re going tell you to go away if you try to ask them tax questions. But in the area of how much you’re supposed to be awarded and what the education expenses are, they are the experts in that area. So you can definitely go to them with those kinds of questions. Just don’t ask them, “what’s my tax bill going to be?” They’re not going to answer that. But, yeah, among that subject matter, they are the best people to go to, I think. It sounds like you’ve developed a little bit of a working relationship with those people.

22:04 Emily: Dessie, thank you so much for giving this interview and sharing the story. I think it’s really unfortunate how it worked out and also just that you were saying that you didn’t catch all of this until the following calendar year or the following semester, naturally. That’s how these things work. Of course you wouldn’t, but because it happened so late, it sounds like the proper paperwork couldn’t have been pushed through in the past. I just want to ask the concluding question that I ask of all my guests, which is what is your best financial advice for another graduate student or early career PhD?

22:34 Dessie: I think asking questions. I think that early and often you should ask questions about the money that you’re getting, where it’s coming from, how it’s classified, and just always not being afraid to shoot financial aid and message and say “Hey, this has come through. Is there anything I need to do with this?” Because I think everyone, us included, but also the financial aid folks would rather be proactive about dealing with a problem rather than getting the early spring email, which was “what is happening, I can’t pay you a couple of thousand dollars.” I think just always asking questions and not being scared to ask about how these things impact you. Outside of academia, people wouldn’t hesitate to ask questions about their paycheck, right? And so we need to kind of be thinking about the same way. If something was different on your paycheck, you would ask why or what’s going on and how you need to deal with it. So just not being afraid to try and talk to people about what’s going on with you so you don’t get in a bind.

23:28 Emily: Yeah, absolutely. And like you said earlier, you don’t have to accept a fellowship. It can just be pushed through. And likewise for some other people, they might not even really be aware of how they’re being paid. They’re just kind of receiving a paycheck and they don’t really know is it from an assistantship. I mean they would know if they were teaching your class, right? They know if it says teaching assistantship, but is it a fellowship, is it an RA, I don’t know. The roles, like what you actually do for each of those things, are pretty much the same. So you might not even be aware until you get a W2 at tax time or don’t get a W2 at tax time, what happened in the previous year. Then, if any adjustments need to have made, then it’s too late, right? Then the tax year has already ended. So totally want to underline that advice — know why you’re being paid, know what kind of tax forms you’re going to receive.

24:10 Emily: I just want to add in a final note for the listeners, if there’s anyone listening who is receiving a fellowship, even a small award, like what Dessie’s been talking about during this interview, you should look into whether or not you need to file quarterly estimated tax. I’m going to link in the show notes my massive article on quarterly estimated tax. And I also have a workshop on that that’s linked from that article. So I’ll link to both those things in the show notes. Please note that the deadlines for quarterly estimate tax are in mid April, mid June, mid September and mid January of every year, usually the 15th of the month or the business day following. So keep those deadlines in mind. If you are receiving a fellowship, you might not have to pay quarterly, but at least you need to investigate and figure out whether or not it’s your responsibility, or whether like what Dessie’s doing, you can just set the money aside and leave it until the end of the year and pay it all at once with your annual tax return.

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25:01 Emily: Thank you again Dessie for coming on and giving this interview and giving this word of warning to all the other graduate students listening.

25:08 Dessie: Thank you for having me.

Outtro

25:10 Emily: Listeners, thank you for joining me for this episode. PFforPphDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved. If you’ve been enjoying the podcast, here are four ways you can help it grow. One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use. Two, share an episode you found particularly valuable on social media or with your PhD peers. Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes. Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs. See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance, but it helps. The music is Stages of Awakening by Podington Bear from the Free Music Archive and is shared under CC by NC. Podcast editing and show notes creation by Lourdes Bobbio.

Fellowship Income Is Now Eligible to Be Contributed to an IRA!

December 30, 2019 by Emily

In this episode, Emily explains the new legislation that allows non-W-2 fellowship income to be contributed to an Individual Retirement Arrangement (IRA). Up until 2019, fellowship or training grant income (reported on a Form 1098-T or Form 1099-MISC or not reported at all) was not eligible to be contributed to an IRA. Certain legislation, the Graduate Student Savings Act (GSSA), which fixes this problem, has been proposed a few times since 2016, but never passed. However, at the end of the 2019 Congressional session, the text of the GSSA was passed and signed into law as part of an omnibus spending bill (H.R. 1865). PhD trainees who are newly eligible to contribute to an IRA should consider their overall financial status and goals to determine whether to contribute and in what amount.

Links Mentioned in this Episode

IRS Publication 590A (p. 6, old definition of taxable compensation)
The Graduate Student Savings Act Fixes a Major Flaw in Tax-Advantaged Retirement Accounts
House Resolution 1865
IRS Publication 970 (p. 5, definition of fellowship)
Everything You Need to Know about Roth IRAs in Graduate School
One-on-One Financial Coaching
The Wealthy PhD

Intro

Welcome to the Personal Finance for PhDs podcast: a higher education in personal finance. I’m your host, Dr. Emily Roberts.

This is Season 4 Bonus Episode 1, and in this episode I will update you on recent legislation that has a major positive impact on the PhD trainee population.

Specifically, starting on January 1st, 2020, the definition of “taxable compensation” for the purpose of contributing to an individual retirement arrangement or IRA was updated to include taxable fellowship income not reported on a W-2.

That’s the takeaway point for those of you already in the know about this issue: Your taxable non-W-2 fellowship income is now eligible to be contributed to an IRA. You can open a Roth or traditional IRA on January 1 or following and put in the $6,000 maximum contribution if you like, assuming your taxable fellowship income is at least $6,000 in 2020. If that’s all you need to know, feel free to stop this episode now, but please share it with your peers as you go.

In the rest of this episode, I will review the prior definition of taxable compensation and how it negatively impacted the PhD trainee community and then explain the recent legislation that changed the definition for 2020 and forward. At the end of the episode, I’ll point you to a few resources to help you in your investing journey.

1 The Prior Definition of Taxable Compensation

The federal government offers a few different tax incentives to encourage individuals to invest for their retirement.

When you invest money inside a tax-advantaged retirement account, you don’t have to pay tax on the growth in your investments as you would for a regular taxable investment account and you also can take a tax break on either the amount of money you contribute to the account or the amount of money you withdraw from the account in your retirement.

Most of the tax incentives are offered through workplace-based retirement accounts, such as a 401(k) in the private sector or a 403(b) in the nonprofit sector. However, there is one type of account that can be opened outside of your workplace, and that is the Individual Retirement Arrangement or IRA.

You as an individual can go to just about any brokerage firm and open an IRA, and it’s not at all connected to where you work. The contribution limit for an IRA is $6,000 per year if you’re under age 50.

The restriction the federal government places on IRAs is that you have to have what’s called “taxable compensation” in a given calendar year to contribute to an IRA. Your overall income also has to fall under certain limits to contribute.

The old definition of taxable compensation was as follows. Think of a two-column list. The left-hand column is types of income that are considered taxable compensation, and the right-hand column is types of income that are not considered taxable compensation. I’m not giving you the exhaustive lists, but just an idea.

In the left-hand list, taxable compensation, you had:

W-2 income, such as you would receive from being an employee,
Self-employment income,
Alimony,
Etc.

In the right-hand list, not taxable compensation, you had:

Rental income,
Interest and dividend income,
Pension or annuity income,
Taxable scholarship and fellowship income not reported on a W-2,
Etc.

This was specified in the tax code. So if your fellowship or training grant income was reported on any kind of tax form other than a W-2, such as a 1098-T or 1099-MISC, or not reported at all, it was not considered taxable compensation for the purposes of contributing to an IRA.

That means that if you went an entire calendar year with only non-W-2 fellowship income, you would not have been able to contribute to an IRA in that calendar year.

This was really tough news for a lot of people in our PhD community. The irony was that students and postdocs who won outside fellowships often received a higher income than their employee peers, so they perhaps had more money available to invest, but they were barred from using an IRA to do so.

Now, there were a couple workarounds. Keep in mind that the contribution limit to an IRA is $6,000 or the amount of your taxable compensation, whichever is lower.

First, the calendar year and the academic year do not line up. So if your funding source switched between W-2 and non-W-2 between academic years, you would still have at least a degree of IRA eligibility in that calendar year.

Second, if you were married and your spouse had taxable compensation, you could contribute to a spousal IRA, up to their amount of taxable compensation or the overall $12,000 per year limit for two IRAs, whichever was lower.

Third, if you had a side hustle, that self-employment or W-2 income would give you some eligibility.

As a last resort, if you truly didn’t have access to an IRA in a calendar year, you still had the option to invest for retirement in a regular taxable investment account. If you chose a tax-efficient investing strategy, such as passive index investing, you probably would not have much of an additional tax burden due to the favorable tax rates for long-term capital gains and qualified dividends. However, this tax advantage was not widely recognized.

The effect of this law was that many PhD students and postdocs who had the financial means to invest for retirement were prevented from contributing to IRAs, and they likely didn’t try to invest instead in a taxable account. The law sent the message that PhD trainees were not supposed to be investing for retirement and were not worthy of being extended the same tax break that employees were. This had an overall dampening effect on the financial ambition of PhD trainees, which in my opinion was a very serious problem.

2 The Legislation That Changed the Definition

All that has changed now. In essence, the new legislation moved taxable scholarship and fellowship income not reported on a W-2 from the right-hand column to the left, from being explicitly excluded from the definition of taxable compensation to being explicitly included in the definition for graduate students and postdocs.

The origin of this legislation was the bipartisan Graduate Student Savings Act or GSSA, first introduced in 2016 in the Senate by Senators Elizabeth Warren and Mike Lee and in the House by Congressmen Joe Kennedy and Luke Messer; however, it was not passed at that time. The GSSA was re-introduced in 2017 and 2019 and eventually included in the bipartisan SECURE Act in 2019, none of which passed.

You can learn more about the GSSA in Season 4 Episode 9 of this podcast, in which I interview Abby Dove, a graduate student who as a science policy fellow worked on getting a scientific advocacy group to endorse the GSSA.

Ultimately, in the closing days of the 2019 session, the text of the GSSA was included in an omnibus spending bill along with the rest of the SECURE Act, passed by both chambers of Congress, and signed into law by the president.

I’ll read to you exactly the change that was made in House Resolution 1865, and I’ll link it from the show notes.

“SEC. 106. CERTAIN TAXABLE NON-TUITION FELLOWSHIP AND STIPEND PAYMENTS TREATED AS COMPENSATION FOR IRA PURPOSES.

(a) In General.—Paragraph (1) of section 219(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following: “The term ‘compensation’ shall include any amount which is included in the individual’s gross income and paid to the individual to aid the individual in the pursuit of graduate or postdoctoral study.”

(b) Effective Date.—The amendment made by this section shall apply to taxable years beginning after December 31, 2019.”

There you have it! The definition of “taxable compensation” for the purposes of contributing to an IRA now includes taxable fellowship income for graduate students and postdocs. However, by my reading, it seems that taxable post-baccalaureate fellowships have not been included in the definition.

That language of “aid the individual in the pursuit of graduate or postdoctoral study” reflects the definition of a fellowship from IRS Publication 970, which reads quote “A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research” end quote.

3 What to Do Now

This change is really good news for the PhD trainee community overall, but it may or may not materially change anything for you. If you now have access to an IRA in 2020 when you otherwise would not have, what should you do? I imagine that PhD trainees fall into one of three groups.

First, some PhD trainees should not be investing for retirement right now, so having access to an IRA doesn’t really matter. This is the case if you don’t have the available cash flow to invest or have other, higher-priority financial goals, such as paying off high-interest debt or saving up cash.

Second, some PhD trainees are ready and able to invest but don’t have pre-existing savings or investments. Maybe they have recently finished paying off certain types of debt or saving up sufficient cash, and they now have cash flow available for investing. This is the group that can open up an IRA and set up a regular savings rate into it; this is called dollar cost averaging. With a $6,000 per year limit, your regular monthly contribution to the IRA can be up to $500, which would be a great savings rate for a graduate student or postdoc.

Third, some PhD trainees have already been saving or investing outside of an IRA and are eager to contribute a lump sum of money to an IRA. You are permitted to contribute the full $6,000 in one go if that’s your preference. Then, throughout the year, you can direct your ongoing savings rate to a taxable investment account or other financial goals.

One question I’ve already received a few times is whether fellowship recipients will be able to contribute to a 2019 IRA. In general, you are allowed to contribute to your prior year’s IRA up until tax day of the subsequent year, and this is a strategy I recommend to anyone who has not yet maxed out their IRA for the prior year. However, since the text of the bill says the change will go into effect after December 31, 2019, my reading is that the old definition of taxable compensation will apply to 2019 IRAs and the new definition will apply to 2020 IRAs.

If you’re not sure what your unique next steps should be or if what I spoke about today even applies to you, I am available to coach you. I can’t recommend specific funds, but we can work together to determine your next financial goal, increase your savings rate, and figure out which high-level investing strategy is most appropriate for you.

You can set up one-on-one coaching with me by going to PFforPhDs.com/coaching. Another excellent option is to participate in my upcoming program, The Wealthy PhD, through which you will receive course content, individual and group coaching, and community with your peers. You can find more information about The Wealthy PhD at PFforPhDs.com/wealthyPhD.

I would be absolutely delighted to shepherd fellowship recipients who have never before invested through the process.

As for additional resources, I have many, many articles on investing on my website, and I have linked several updated ones from the show notes. You can find the show notes for this episode at PFforPhDs.com/s4be1 for season 4, bonus episode 1.

For international students and postdocs, I would also recommend listening to Season 4 Episode 17 of this podcast, which answers the question of whether it is permissible and advisable for international students, postdocs, and workers to invest while living in the US. Keep in mind that I recorded this episode prior to the definition of taxable compensation changing.

Finally, if you need to take a big step back because you were surprised to hear that your fellowship and potentially scholarship income is taxable, I recommend listening to Season 2 Bonus Episode 1 of this podcast, titled Do I Owe Income Tax on My Fellowship?

Thank you for joining me for this special bonus episode. Please spread the good news about IRA eligibility to your peers also receiving fellowship or training grant income by sharing this episode with them!

Outtro

Listeners, thank you for joining me for this episode.

PFforPhDs.com/podcast is the hub for the Personal Finance for PhDs podcast. There, you can find links to all the episode show notes and a form to volunteer to be interviewed. I’d love for you to check it out and get more involved.

If you’ve been enjoying the podcast, here are four ways you can help it grow:

One, subscribe to the podcast and rate and review it on Apple podcast, Stitcher, or whatever platform you use.

Two, share an episode you found particularly valuable on social media or with your PhD peers.

Three, recommend me as a speaker to your university or association. My seminars covered the personal finance topics PhDs are most interested in, like investing, debt repayment, and taxes.

Four, subscribe to my mailing list at PFforPhDs.com/subscribe. Through that list, you’ll keep up with all the new content and special opportunities for Personal Finance for PhDs.

See you in the next episode, and remember, you don’t have to have a PhD to succeed with personal finance—but it helps.

The music is Stages of Awakening by Podington Bear from the Free Music Archive and is shared under CC by NC.

Weird Tax Situations for Fellowship and Training Grant Recipients

February 20, 2019 by Emily

One of the most puzzling tax scenarios that is common in academia—but almost unheard of outside of it—is fellowship or training grant funding because it is neither a wage nor self-employment income. Fellowships and training grants, which I call “awarded income,” frequently pay the stipends and salaries of graduate students, postdocs, and postbacs. This post explains the weird tax situations for fellowship and training grant recipients and how to address them. I’ll clarify right up front that you do need to incorporate your awarded income into the gross income you report on your tax return, and you almost certainly will end up paying tax on it (unless your total income is very low or you have lots of other deductions/credits).

This article was last updated on 3/19/2024. It is intended for US citizens, permanent residents, and residents for tax purposes. It is not tax, legal, or financial advice.

Further reading/viewing:

I have to define my terms up front here because “fellowship” is used variously inside and outside of academic research, and these weird tax situations don’t always apply. What I’m talking about is when your income from your academic/research role is not reported on a Form W-2 (and you’re not self-employed).

Often, though not always, winning an external or internal fellowship generates this kind of income. The National Science Foundation Graduate Research Fellowship (GRFP) and the Department of Defense National Defense Science and Engineering Graduate Fellowship (NDSEG) are among the most well-known examples of this type of income at the graduate level for STEM fields. Basically, you’re being paid because you won an award, not because you are directly trading work or time for money. This kind of income can also come from training grants, such as the National Institutes of Health Ruth L. Kirschstein Institutional National Research Service Award (T32), and in those cases you might or might not be labeled a fellow by your institution.

If your income is reported on a Form W-2, whether it’s called a fellowship or not, this post doesn’t apply to you!

Personally, over my time in/near academia, I received awarded income on five occasions:

I was postbaccalaureate fellow at the NIH for a year between undergrad and grad school, and my income was reported on a 1099-G.
I was on a training grant in my first year of grad school, and my income was reported on a 1099-MISC in Box 3.
I won an internal fellowship for my second year of grad school, and my income was reported on a 1099-MISC in Box 3.
I was paid from my advisor’s discretionary funds in my sixth year of grad school, and my income was reported on a 1099-MISC in Box 3.
I was a Christine Mirzayan Science and Technology Policy Fellow at the National Academy of Engineering, and my income was reported on a 1099-MISC in Box 3.

Receiving Unusual Tax Forms

The way to definitively tell that you’re receiving awarded income is that you don’t receive a Form W-2 at tax time for your income, which was likely paid similarly to a regular salary or perhaps in a lump sum per term. Instead, you might see your income reported on some other strange tax form:

Form 1098-T
Form 1099-MISC
Form 1099-NEC
Form 1099-G

There are other possible mechanism for this reporting; these are the four most commonly used by universities and funding agencies.

None of these forms was designed for reporting awarded income and none do it very well, but they do get the job done if you know what you’re looking for.

Form 1098-T

Form 1098-T, which is issued to some students depending on your university’s policies, is sort of a clearinghouse form for the sum of your fellowships/scholarships/grants received (in Box 5) and also the sum of the qualified tuition and related expenses that were paid (Box 1) to your student account. Your fellowship income might be lumped in with your scholarships in Box 5, which makes them a little hard to parse, or Box 5 might only include your scholarships (see next section if so).

The good thing about Form 1098-T if it includes your fellowship income is that it does put front and center two of the important numbers you’ll need to work with when you prepare your tax return, the sum of your awarded (fellowship, scholarship, and grant) income (Box 5) and a subset of your Qualified Education Expenses (Box 1). You don’t really need to know what your fellowship income was independent of your additional scholarship/grant income See Weird Tax Situations for Fully Funded Grad Students for more details about working with Form 1098-T.

Form 1099-MISC

Form 1099-MISC is a slightly confusing form to receive for fellowship income.

Any non-academic who hears/sees that you have income reported on a 1099-MISC is going to think you’re self-employed. Self-employment and contractor income used to be reported in Box 7, which no longer exists following the creation of Form 1099-NEC (see next). Fellowship income usually shows up in Box 3, “Other income.” If you are a grad student or postdoc, you are not self-employed; do not pay self-employment tax!

The instructions for the 1099-MISC tell you to (“generally”) report your Box 3 “Other income” in the “Other income” line on your Form 1040 Schedule 1. There is a precise line on which you should do so: Form 1040 Schedule 1 Line 8r, which is labeled “Scholarship and fellowship grants not reported on Form W-2.”

Form 1099-NEC

The IRS resurrected Form 1099-NEC, which stands for “non-employee compensation,” starting in tax year 2020. All self-employment and contractor income is now supposed to be reported in Box 1.

Unfortunately, a minority of funding agencies are also reporting awarded income on Form 1099-NEC Box 1. Similar to Form 1099-MISC, if you are certain that this income is fellowship or training grant income and not self-employment income, you should report it as fellowship income on your tax return. If you erroneously report it as self-employment income, you will pay self-employment tax (15.3%) and exclude yourself from taking a higher education tax break.

Form 1099-G

Form 1099-G is typically used when the funding body is part of the federal government. The awarded income shows up in Box 6, “Taxable grants.”

Further reading:

Receiving No Tax Forms

Going along with the theme of not receiving a Form W-2 at tax time, you might very well not receive any tax form at all! It’s very common for there to be zero communication between the organization that pays the fellowship and the fellowship recipient. Other times, the fellow might receive what I call a “courtesy letter,” which is just a short, informal letter stating the amount of fellowship money paid.

Further reading: What Is a Courtesy Letter?

Fellows who don’t receive tax forms or whose institutions and funding agencies don’t communicate with them at all about their personal taxes may feel completely adrift. They have no idea where to even start with preparing their tax returns. Many pay no taxes at all (if you know someone like that, send them this article!) since it takes a certain level of awareness of your tax responsibility to even wonder if you need to pay income tax. Even those who suspect they need to report and pay tax on their fellowship income might be daunted by the task of figuring out from scratch exactly how to do that.

Further listening: Do I Owe Income Tax on My Fellowship?

But it’s really a simple process to carry out if you know what to do! You should be able to find the amount of fellowship or training grant income you were paid for the whole year from your bank records. If you’re not a student, you just straight report that number in Form 1040 Schedule 1 Line 8r. If you are a student, you have to work with your other scholarships and qualified education expenses a bit before reporting a number for your awarded income; see Weird Tax Situations for Fully Funded Grad Students for more details.

Further reading: Where to Report Your PhD Trainee Income on Your Tax Return

Quarterly Estimated Tax

In my observation, the great majority of awarded income recipients have the responsibility of paying quarterly estimated tax—and many, many, many neglect to do so. If you need one level of awareness to even understand you’re supposed to pay tax on your fellowship income, you need an even higher level of awareness before you follow through on paying quarterly estimated tax. In fact, if the organization providing you the fellowship didn’t mention this, it’s not a water cooler topic around your department, and/or you’ve never been self-employed or close to someone who is self-employed, you almost certainly wouldn’t know to do it.

The basic principle here is that the IRS expects to receive tax payments throughout the year, not just in April when your tax return is due. If you owe enough additional tax at the end of the year (and don’t qualify for an exception), the IRS is going to demand not only your tax payment but late fees and interest as well.

The main system for sending tax in to the IRS is tax withholding on a normal paycheck. If you don’t do that or your withholding isn’t sufficient, you’re supposed to pay estimated tax. Basically, you send in a payment (no forms need to be filed) to the IRS four times per year to make sure you don’t have too much extra tax due when you file your yearly tax return. You should work through the estimated tax worksheet on p. 8 of Form 1040-ES to figure out if you are required to pay quarterly estimated tax and in what amount; you can also find the instructions for filing it in that form.

Further reading: The Complete Guide to Quarterly Estimated Tax for Fellowship Recipients

Taxable Compensation and Earned Income Tax Breaks

Some of the tax breaks the IRS offers are contingent on the type of income you have, and fellowship income (not reported on From W-2) does not necessarily qualify.

Individual Retirement Arrangement

To contribute to an Individual Retirement Arrangement (IRA), you (or your spouse) must have “taxable compensation.”

Through 2019, the definition of “taxable compensation” did not include fellowship and training grant income not reported on Form W-2. However, starting in 2020, the definition of “taxable compensation” changed for graduate students and postdocs to include fellowship and training grant income even if not reported on From W-2.

Therefore, all types of graduate student and postdoc taxable income, whether reported on a Form W-2 or not, is eligible to be contributed to an IRA starting in 2020.

Further reading:

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) or Earned Income Credit (EIC) is a credit extended to low-income individuals and families. If your household income is quite low and/or you have one or more children, you might be able to receive the credit. As the name implies, you need “earned income” to qualify for the EITC. Unfortunately, fellowship/scholarship income is not considered “earned income” (Publication 596 p. 18). Puzzlingly, having zero earned income disqualifies you from the credit, but having too much non-earned income also disqualifies you from the credit. The definition of earned income also plays into the calculations for the Child Tax Credit and Additional Child Tax Credit.

Dependent Status

When you are trying to determine if you should file a tax return as an independent adult vs. a dependent of your parents, it is more difficult to qualify as independent with fellowship income rather than an equal amount of W-2 income. (This only applies to students under age 24.) While education expenses count as part of the amount of money that goes toward your “support,” scholarships and fellowships that you won do not count as you providing your own support.

Kiddie Tax

Fellowship income counts as unearned income for the purposes of being subject to the Kiddie Tax. If you are under the age of 24 on December 31 and a student, your “unearned” income exceeding $2,500 may be subject to a higher tax rate than the ordinary rate.

Further reading: Fellowship Income Can Trigger the Kiddie Tax

Do I Owe Income Tax on My Fellowship?

February 19, 2019 by Emily

Postbac, graduate student, and postdoc fellows frequently ask whether their fellowships are considered taxable income. PhD-type fellowships that are not reported on a W-2 are non-compensatory income. They might be reported on a 1098-T in Box 5, on a 1099-MISC in Box 3, or on a courtesy letter or not reported at all, which accounts for the widespread confusion. Publication 970 answers the question of when a fellowship can be considered tax-free. Fellowships are considered part of the recipient’s taxable income unless they go toward paying qualified education expenses (students only).

Links Mentioned in the Episode

Publication 970

Transcript

Welcome to the Personal Finance for PhDs Podcast – a higher education in personal finance. I’m your host, Emily Roberts.

I’m doing something a little bit different in this special bonus episode for Season 2.

I’m using it to answer a frequently asked question that I receive about taxes. The question is: Do I owe income tax on my fellowship?

In this episode, I’m speaking to citizens and residents in the United States. And I’m also talking about PhD-type fellowships whether at the postbac level, the graduate student level, or the postdoc level.

What’s going on with these fellowships that makes the recipient question whether or not they are taxable is that they are not reported on a W-2. They might not be reported at all, or they may be reported on a 1098-T in Box 5, on a 1099-MISC in Box 3, or on a courtesy letter, which is not an official tax form but rather just a letter that states what the amount of the fellowship was in that calendar year.

Fellowship income is considered part of your taxable income. Now, you may not actually end up paying tax on your fellowship income depending on the rest of your return, like the deductions and credits you’re going to be able to take, but it is considered part of that taxable income.

Now, I know you’re not inclined to just believe me right off the bat. I mean, there’s a strong incentive for you to believe that your fellowship income is not taxable, so I’m going to give you a bit of evidence here.

IRS Publication 970 is the definitive publication on the taxability of fellowship and scholarship income. I’ll read you a few excerpts from Chapter 1 of Publication 970.

First, some definitions:

A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies.

A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

So you can see that fellowship grants are much more broad; they can be issued to non-students, whereas scholarships only go to students.

Chapter 1 of Publication 970 approaches fellowships and scholarships from the perspective of trying to make them tax-free.

So let’s see how that can happen:

A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.

So right off the bat we know that anybody who is receiving a fellowship who is not a student cannot make their fellowship tax-free, i.e., it is part of their taxable income.

Additionally:

A scholarship or fellowship grant is tax free only to the extent: It doesn’t exceed your qualified education expenses…

So now we’re just dealing with the graduate student population that has the potential to make a scholarship or fellowship grant tax-free.

The way that we use the terms ‘scholarship’ and ‘fellowship’ in academia, a ‘fellowship’ generally refers to the money that you take home for your living expenses, whereas ‘scholarship’ is the money that goes towards paying your tuition and fees, the qualified education expenses.

Very roughly speaking, your qualified education expenses can make your scholarships tax-free if you’re a fully funded graduate student, but there’s no more qualified education expenses to start making your fellowship income tax-free. Therefore, again, roughly, your fellowship income is included in your taxable income.

So to summarize, fellowship and scholarship income that goes towards paying our qualified education expenses like tuition and fees can be made tax-free, but fellowship and scholarship income that goes towards paying other kinds of expenses like your living expenses can’t be made tax-free.

Now, I’m glossing over some very important details on how you actually calculate your taxable income, so if you want more information about that, please see the tax center on my website, pfforphds.com/tax.

But, there you go, roughly speaking, fellowship income does need to be included in your taxable income, whether you are a postbac, a graduate student, or a postdoc.

Thanks for joining me in this short bonus episode!

Please share this episode on social media and with your peers because this is a message that they need to hear. It’s not a message that they want to hear, but it’s a message that they need to hear to stay on the right side of the IRS.

Show notes for this episode can be found at pfforphds.com/s2be1.

Thanks for joining me today, and I’ll see you in the next episode!

Further reading/viewing:

Using Data to Improve the Postdoc Experience (Including Salary and Benefits)

February 11, 2019 by Jewel Lipps

In this episode, Emily interview Dr. Gary McDowell, the executive director of Future of Research. Future of Research is an advocacy organization that uses data to empower early-career researchers. Gary outlines the ongoing work at Future of Research before diving into the details of their recently published study on postdoc salaries. Emily and Gary discuss the complexities around categorizing and counting postdocs as well as the interesting results from the data Future of Research acquired by Freedom of Information Act requests. Current postdocs can contribute to this ongoing project by submitting their salary and benefits data to the Postdoc Salaries database.

Links mentioned in episode

0:00 Introduction

1:07 Please Introduce Yourself

Dr. Gary McDowell is from Northern Ireland and Scotland. All of his undergraduate and postgraduate education was completed in the United Kingdom. He moved to the United States to become postdoc. First, he worked at Boston Children’s Hospital, then he worked at Tufts University in the Boston area. As a postdoc in the United States, Gary became interested in the scientific system itself, such as setting scientists up for success and producing scientists, not just science. He experienced the frustration that many people feel with the scientific system and its hyper competition.

Now Gary is the executive director of the nonprofit Future of Research. Their mission is to empower early career researchers with evidence to help them change the research system and the enterprise they experience.

3:00 Can you give us an overview of Future of Research and the organization’s work?

Gary is the only staff member of Future of Research. The board of is comprised of twenty early career researchers. The organization originated with a conference to bring early career researchers together to discuss ways to reduce hyper-competition in biomedicine. They held conferences around the country and realized the need for a group that has these conversations. The nonprofit provides data and evidence to early career researchers to help them make better choices and to educate the rest of scientific community of the realities our generation is currently experiencing. Their work is done by the board and volunteers.

Future of Research has worked on two major projects which came out of local meetings. The project “Who’s on board?” aims to get more early career researchers into leadership positions, starting with scientific societies. Through this project, Future of Research seeks to generate a network of future leaders for scientific organizations to tap into. They are working on a project to address mentoring, because it is one of the biggest concerns of early career researchers. Junior faculty often ask, “How do I find out more about how to mentor and manage people?” Junior faculty are expected to be mentors, but don’t know how to. Future of Research will host a summit in Chicago to bring together people who work in this space and who research mentoring. They will discuss what grassroots action they can take to make sure institutions are putting mentoring at the center of their interests.

Future of Research has been responsive to needs that arise. They are beginning a project to examine peer review and address this phenomenon of grad students and postdocs essentially ghostwriting a peer review report that is then submitted to a journal under someone else’s name. This is a problem of appropriate scholarly recognition, but at the same time the academic community hears there are not enough reviewers. Journals are crying out for more reviewers, but there is lack of transparency about who’s doing reviews, creating barriers to journals having names of potential reviewers. Surveys suggest that principle investigators are not trained in peer review, their practices come from assumptions, and there is generally lack of clarity of expectations in the peer review process.

Future of Research has just finished a postdoc salary project. It started when they formed the nonprofit. At the time, there was a change to federal labor law being proposed. The change was going to affect postdocs by raising their salaries, or by causing institutions to have postdocs clocking in and out and tracking time. Future of Research watched the push to raise postdoc salaries, and started following what institutions would do in response. They had the question about what are the actual salaries that people in postdoc positions have?

8:34 What is your recent paper and where can people find it?

The title of their paper is “Assessing the landscape of U.S. postdoctoral salaries.” It’s open access in the Studies in Graduate and Postdoctoral Education, Emerald Insight Publishing Groups.

9:07 What is a postdoc?

According to Gary, the PhD is when the trainee is learning how to do science, how to carry out research, how to do experiments, and analyze,. The PhD is for learning the nuts and bolts of being a scientist. The postdoc is intermediate, after the PhD and before the professor position. Gary’s opinion is that a postdoc should be considered as a period when you should be thinking about your own research goals and how to take those foward. Postdocs should be learning under the mentorship or apprenticeship of an investigator. Postdocs should be learning how to manage a group, mentor people, manage budgets, write grants, and lead a team.

However, Gary says that the postdoc is more likely a period of further research. Many people change field and get experience in another research group. Postdocs are often trying to get a certain number of published papers. Postdocs are trying to demonstrate they can succeed in a different lab and accrue credentials to get a faculty position to start as a professor.

Emily adds that there are eleven different common titles under which postdocs can be hired. There is a discrepancy between how employers see postdocs and how postdocs see themselves. What level of awareness do universities have around their own postdocs?

11:55 How was the idea for a project to assess postdoc salaries formed? What question were you asking?

When the team at Future of Research was looking at policies that were being updated in response to labor law, they realized that these policies at an institution don’t tell us necessarily what people are getting paid. Though the institution has a policy about postdoc salaries, actually paying postdocs that amount requires adherence to policy and someone following up to enforce policy. The team saw a pre-print paper by Rescuing Biomedical Research, another nonprofit, which looked at National Science Foundation data on number of postdocs and concluded that the number of postdocs in decline. They questioned whether there is truly a decline, or instead a bubble of people staying in postdoc positions for longer. These questions led them to start the project to collect data on postdoc salaries.

The team at Future of Research found that institutions are doing a terrible job of reporting year to year how many postdocs they had. While institutions were receptive to policy changes, if the institutions don’t know who the postdocs are to begin with, will people fall through the cracks? Will the policies actually be reflected in reality? The institution could recommend salary, but never follow up.

Institutions are also in a constant argument over whether postdocs are employees or trainees. Unfortunately, it seems postdocs are employees when it suits, such as when the institution needs to keep postdocs out of things they need to do for students, but postdocs are trainees in terms of lower salaries and receiving no benefits.

14:18 What position counts as an employee or not an employee?

Gary explains that whether a position is designated as an “employee” is complicated by where the money comes from. Postdocs may be “staff” on a grant, or postdocs may be on fellowships of various kinds. When postdocs are on fellowships or paid directly, they are usually referred to as trainees, typically lose benefits, and the institution says they are no longer an employee. The U.S. Department of Labor created a specification about who is an employee, specifying that it’s not who pays you, it’s the nature of the work. The Department of Labor made this specification because some institutions tried to designate postdocs as fellows to get out of the new labor law. The Department of Labor explicitly sent this message to the National Institutes of Health, stipulating that the NIH had to raise fellowship stipend under the new law.

17:08 What did you do for the postdoc salaries project?

The team from Future of Research wanted to analyze postdoc salaries, but they learned that this information was not easy to find. They carried out Freedom of Information requests at public institutions. They contacted the Freedom of Information or Public Records offices at public institutions, which were legally required to give out data like this. They asked for the position title and salary of everyone who was a postdoc, on date of December 1, 2016 when the new labor law was due to come into effect and changes were likely to happen. This method forces the institution to provide information, and this method served as an internal metric of whether universities know what postdocs are. Certain institutions didn’t know what a postdoc was, and asked Future of Research to explain what a postdoc is. Future of Research cross checked the information they received from Freedom of Information requests with the National Science Foundation data on postdoc numbers.

20:05 What was your analysis of the data from public institutions?

Future of Research had a data scientist on the team, who analyzed the distribution of salaries. They brought out patterns by geographic region, by gender, and by title. They examined what variables were affecting the salaries. Their aim was to assess the landscape and figure out what salary distribution looked like. This could set the bar to work from for efforts going forward.

21:07 What were the broad conclusions of the postdoc salaries project? Was there anything surprising to you?

Gary says they got broad distributions of postdoc salaries. Nature published a write-up that emphasized that postdoc salaries vary wildly by institution. Most people received between $40,000 and $49,999 annual pay. They found that 22% of all their data was within a $25 range around the new National Institute of Health minimum stipend, which was very close to the proposed salary threshold is under the federal labor law. Gary shares that when Future of Research considers the levers they need to pull to raise postdoc salaries, it is a very useful finding that the median salary of all postdocs across the US, regardless of field, was pegged to minimum NIH National Research Service Award stipend amount. The most effective policy lever for raising postdoc salaries in the U.S. is to get NIH to raise the NRSA award stipends.

Emily emphasizes that so many universities go off the NIH minimum salaries, even though it’s just a recommendation, and it’s just a minimum. She points out that this minimum doesn’t take into account different cost of living. Is this the minimum for Bethesda, Maryland, where the NIH is located? Institutions go off this as if it is absolute truth. Gary brings up that in December 2018, NIH raised minimum salary. Now the minimum is $50,000, this amount has been recommended for quite some time. Gary and Jessica Polka, president of Future of Research, are on the National Academies study for the Next Generation Researchers Initiative. They will be releasing recommendations informed by this data.

Gary was surprised by how many salaries were in the $50,000 range. They broke down the distribution by field for a large subset and found no real field dependence for the salaries. People would expect the humanities to be lower, but the humanities were not lower. Gary was surprised by how often biomedical engineering salaries were in the lower end of the distribution. Gary wonders who negotiates, and if there’s a disparity in who’s negotiating. He mentions that talking about money in academia is stigmatized.

Emily created the website PhD stipends with her husband. Now it has over 4000 entries in it. It is a great place to go for prospective graduate students. She has thought there should be the same resource for postdocs. They have started postdocsalaries.com for people to self-report their salaries. Future of Research obtained information from public institutions, but they are completely missing private institutions. Self reporting also provides a check on whether what the institution reports matches what postdocs report. Postdocsalaries.com is a useful self reporting tool, that helps other people compare salaries and gives them the opportunity to comment on issues.

Gary discusses that when he gives a talk at institution, he loves to bring up money. He wants to break the stigma that ‘we’re not supposed to talk about this’ and tell people that this should be one of the questions that you ask your prospective PI. Gary says how that question is answered will tell you a lot about the PI as a person. You should look for someone who responds “I would love to pay you more, we can look into fellowships or I can find opportunities to pay you extra,” and steer clear of potential advisors who say “This isn’t about the money.” This is part of gathering information for your decision.

37:08 What are some action steps that postdocs can take today to improve their salaries, benefits, or working conditions?

Gary says always having data at hand is useful for individuals and groups to advocate. With data, you can approach an institution with the salaries that people are getting in your field, and point out that this is what the policy says so this is the expectation. This is action you can take on the personal level.

When Future of Research compared institutions publicly, there were administrators who could now use the data to say that the institution is being compared to everyone else, if they want to be competitive for postdocs they need to raise postdoc salaries. For groups looking to push for change in an institution, there are a number of lines of evidence. Gary says that comparing with peer institutions is useful. The most recent recommendations are that postdoc salaries should be at least $50,000 then adjusted for cost of living, then for your years of experience.

Listeners should go to postdocsalaries.com to get involved and learn more.

40:56 Conclusion

Negotiating PhD Funding Offers: This Grad Student Did It Successfully

January 28, 2019 by Jewel Lipps

In this episode, Emily interviews John Vsetecka, a second-year PhD student in History at Michigan State University. When John was a prospective PhD student, he attempted to negotiate the stipend and benefits of the three admissions offers he was seriously considering. John shares exactly how he initiated the negotiation process and the outcomes at each of the universities. His negotiation method is well-researched and well-considered and is applicable to many if not most other prospective graduate students. John and Emily also discuss how prospective PhD students should combat imposter syndrome during the admissions process.

Links mentioned in episode

0:00 Introduction

1:05 Please Introduce Yourself

John Vsetecka is a second-year PhD student in the Department of History at Michigan State University. He studies modern Ukrainian history, with a focus on the 1932-1933 famine. Before beginning his PhD program, he worked as a GEAR UP advisor. This is a federal grant agency that works with low income students, called Gaining Early Awareness and Readiness for Undergraduate Programs. He worked in Colorado to help middle school and high school, low income students prepare for college. Before this job, he got a Master of Arts in History in 2014 at the University of Northern Colorado.

2:55 What PhD offers and interview requests did you receive from universities?

When John applied to PhD programs, he applied to eight schools and faced some rejections. He considered four offers, then narrowed his list to three. The first offer he eliminated would have required that he start with MA and work into PhD. Since he already had an MA, he felt he was ready to move on. He seriously considered three offers. He accepted the offer from Michigan State University, where he is now. He visited “University 2” in person for an interview. He had a virtual interview with “University 3.”

4:21 What did you think about the offers from these three universities?

John wasn’t sure what a fair offer was for a PhD position in History. Generally, PhD students are shy about sharing their financial experiences. So he did research and his mentor from the University of Northern Colorado guided him in this process. He talked to other PhD students, who would say they had enough to live on or that they were struggling. He used the websites GradCafe and PhD Stipends. He got a sense of what people were being paid, including their health insurance and fees. From all of this information, he decided two offers were fair and worth considering.

Emily shares an important piece of advice for prospective PhD students is to do your research. Anonymous databases, like PhD Stipends, provide more transparency around these offers. But you should talk to current graduate students, because it’s one thing to look at the numbers, and another thing to get a feel for how it is to live on that amount.

Further Reading: How to Read Your PhD Program Offer Letter

7:54 How did you initiate the negotiation process for your PhD stipend offers?

John negotiated his stipend offers during his interviews. He went to visit two universities in person for interviews, and had a virtual interview a University 3. His first interview was at University 2. During the visit, they have an itinerary and fully scheduled day. The experience is like a whirlwind. He prepared a set of questions for faculty members and set of questions for Graduate Director. With the Graduate Director, he talked about the PhD program as a whole to get their insight. Then he directly asked the Graduate Director if there is any other money available, such as other fellowships, and explained that he has other offers with higher financial value. The Graduate Director is the one that can control the money. The faculty can only put in good word on a student’s behalf. So as a prospective PhD student, you should know who you can talk to and know who you can negotiate with. You don’t need to be afraid to ask tough questions about financial aid.

The PhD program interview was a good time to negotiate PhD stipend offers. John waited until he received all offers to see where he stood across the field, and this gave him some leverage. Negotiating like this is is what people do with any other job. John told the Graduate Director that he had other offers, but he didn’t show them the letters themselves. Negotiating before receiving all other offers and before the interview can seem desperate. But if he negotiated after the visit, it might seem like that offer wasn’t his first choice and he was only negotiating after losing another offer. John also believes that talking in person is the best type of communication. Negotiating in person puts them on the spot.

During his interview visit for University 2, John asked the Graduate Director about the potential for a better financial package. The Graduate Director told John that they would get back to him a couple hours. Later that day, John received an email with a offer for a fellowship package. This showed John that they were willing to work on his behalf. He was surprised by this because he had expected them to negotiate and push back. During the interview visit, the department is most focused on recruitment, so they quickly considered his request and acted on it.

John went into the meeting with a set plan for negotiation. He had a notebook and visibly took notes during the conversation, which indicates that he took the negotiation seriously. Treating graduate school interviews like a professional scenario sets you up for success.

14:35 What new offer did you receive after negotiating?

Because he negotiated with the Graduate Director, John received an offer of a university fellowship instead of a teaching assistantship. The new offer was university-based funding, not department-based funding like his original offer. The university fellowship had different teaching requirements than the department teaching assistantship. It was more money in total, as well as better health care coverage. This showed what kind of control the department and university has over financial awards for PhD students. Even if the university can’t raise stipends, they can cover more fees or provide better benefits.

16:22 What outcomes did you get from negotiating with the other two universities?

John learned that not everyone would negotiate. At Michigan State, he had a generous offer that he was already happy with. Even so, he asked the Director of Graduate Studies at Michigan State about his financial award. The director kindly told him that his original financial award was what the department was willing to offer. John later learned that his department offers different financial packages based on a tiered system, and he was happy with the offer he received.

At University 3, John had a virtual meeting with the department. John brought up that he had offers with much more value than what they had offered him. John says that honestly, he was displeased with University 3’s financial offer. He learned that due to financial constraints at University 3, the department couldn’t offer more money. The department suggested term-to-term options. John didn’t want to be on his toes every semester wondering if he’d get paid. Though University 3 offered paid tuition, the money offered for teaching/research was not enough to even consider.

It’s important for prospective PhD students to recognize that some offers only tell you about the first year, while others present a five-year plan for funding.

19:35 Based on what you experienced, what would you do to negotiate differently?

John says he wouldn’t change much. While he knew negotiation was possible, he personally didn’t know anyone in his cohort group that negotiated their stipend offer. John heard from his advisors and mentors that it’s ok to ask, but you have to know to ask. John says this is one of those hidden things in academia. If prospective graduate students receive multiple offers, this is a chance to use offers against each other.
even if you get one offer, be happy, but if you get more offers you can use them

Emily brings up that often, applicants don’t feel a lot of confidence. They often think, “Who am I to be receiving these offers?” This imposter syndrome deters prospective PhD students from negotiating their stipends and ensuring that they receive the best offer.

22:27 How did you know negotiating your PhD offer would be possible and welcome?

John’s MA program advisor told him how to negotiate PhD stipend offers. First, you have to apply to multiple universities and know their programs well. Second, you need to know who you want to work with. Third, you need to talk with current graduate students. This is the most important advice. If you find their email on department websites, you can email them directly. Fourth, online communities like GradCafe help you connect with people who can help you.

John says that graduate school applicants should treat a PhD position like any other job. John says this profession should not be excluded from the process of negotiation. John’s experience at GEAR UP, where he helped low income students fight for undergraduate school money, showed him that there is a lot of money out there. He says it’s unfortunate so many undergraduates go into a lot of debt, when there are all types of money out there for different skills and talents. John wonders why graduate students can’t have that money too? There are different organizations, based in different fields, but money is out there. He suggests prospective students apply to everything they’re qualified for, but they also ask universities and departments what they can give.

Emily adds that prospective PhD students need to consider cost of living. If you have school A versus school B with higher stipend and in lower cost of living, you can ask the school A’s department what they can do to make the offer comparable.

26:44 Has your negotiation had any lasting impact on your graduate career?

John says the negotiation process doesn’t stop when you receive your final offer. Negotiation is a longer standing issue to think about in the future. At Michigan State, John and his peers negotiate for conference money, travel money, research money for the summer. Some graduate students can’t find money beyond teaching assistantships. Because he considered these benefits in his financial offer, he accepted a position that allows him the time and money to not worry. He has summer funding and he can teach online. For instance, he taught a seven week class online while being in Ukraine for research. He chose a school with an institutional investment. The department is doing well and it is investing in its students. He saw that the department was willing to invest continually in their students. He thinks the investment will continue after he graduates.

29:33 Final Comments

John says prospective graduate students should feel free to reach out to him. He likes to help in any way he can. When you get your offers, the first thing you should do is celebrate, and get a round of applause. After celebrating, look over your financial offer, and look beyond stipend to health insurance and benefits. If you get multiple offers, compare them. Be confident about your acceptance into a program and don’t be afraid to negotiate. Know that you have power in these situations. Even though graduate students often don’t have much power, this is the situation where you do. You have all the power and you should use it while you can.John treated PhD offers like job offers because it’s also a job, in literal and figurative sense.

fellowship

Links Mentioned in This Episode

Teaser

Introduction

Will You Please Introduce Yourself Further?

Funding During the PhD:

Fellowship Cap and Being Over-awarded

Proactive Steps to Avoid Getting Over-awarded

Commercial

Tax Consequences of Being Over-awarded

Saving Money for Taxes When Your Fellowships Do Not Have Tax Withheld

Final Words of Advice

Outtro

Links Mentioned in this Episode

Intro

1 The Prior Definition of Taxable Compensation

2 The Legislation That Changed the Definition

3 What to Do Now

Outtro

Receiving Unusual Tax Forms

Form 1098-T

Form 1099-MISC

Form 1099-NEC

Form 1099-G

Receiving No Tax Forms

Quarterly Estimated Tax

Taxable Compensation and Earned Income Tax Breaks

Individual Retirement Arrangement

Earned Income Tax Credit

Dependent Status

Kiddie Tax

Links Mentioned in the Episode

Transcript

Links mentioned in episode

0:00 Introduction

1:07 Please Introduce Yourself

3:00 Can you give us an overview of Future of Research and the organization’s work?

8:34 What is your recent paper and where can people find it?

9:07 What is a postdoc?

11:55 How was the idea for a project to assess postdoc salaries formed? What question were you asking?

14:18 What position counts as an employee or not an employee?

17:08 What did you do for the postdoc salaries project?

20:05 What was your analysis of the data from public institutions?

21:07 What were the broad conclusions of the postdoc salaries project? Was there anything surprising to you?

37:08 What are some action steps that postdocs can take today to improve their salaries, benefits, or working conditions?

40:56 Conclusion

Links mentioned in episode

0:00 Introduction

1:05 Please Introduce Yourself

2:55 What PhD offers and interview requests did you receive from universities?

4:21 What did you think about the offers from these three universities?

7:54 How did you initiate the negotiation process for your PhD stipend offers?

14:35 What new offer did you receive after negotiating?

16:22 What outcomes did you get from negotiating with the other two universities?

19:35 Based on what you experienced, what would you do to negotiate differently?

22:27 How did you know negotiating your PhD offer would be possible and welcome?

26:44 Has your negotiation had any lasting impact on your graduate career?

29:33 Final Comments

31:27 Conclusion

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