Personal Finance for PhDs

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tax

What to Do with Your Higher Take-Home Pay

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Whatever you might think of the Republican tax bill from last fall, it has now been passed into law and has already started to affect your income taxes for 2018. In many cases, your tax burden as a graduate student or postdoc will decrease for this year compared to last year, which means you’ll have more money in your pocket starting with your January or February paycheck.

higher take home pay

Will Your Take-Home Pay Increase?

A few weeks ago, I calculated what the tax burden would be for single or married people with no dependents with the income ranges that are most common for graduate students and postdocs ($15,000/year to $110,000/year). I found that across those income ranges, the tax burden decreased by 20-35%. Families with children under the age of 17 would see an even further decrease due to the larger Child Tax Credit.

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To perform these calculations, I assumed that you will take the standard deduction on both your 2017 and 2018 taxes. If that assumption is true (and your income is in the above range), you should see a decrease in your tax burden.

The taxpayers who may see an increase in tax due under the new law are those who currently itemize their deductions, such as households who have in the past deducted more than $10,000 in property tax and state and local taxes together. Another group that may see a higher tax liability under the bill (depending on the rest of their situation) is parents of dependent children aged 17 and older; the exemptions they used to take have been eliminated, and the expanded child tax credit is only for children up to age 16.

Further Reading:

However, I think my assumptions are valid or at least reasonably accurate for the vast majority of graduate students and postdocs, who tend to be younger with lower incomes/expenditures. It’s safe to say that most graduate students and postdocs will see a higher take-home pay in spring 2018 than they did in fall 2017; effectively, you will see a ‘raise.’

What to Do with Your Income Increase

I have no shortage of ideas of actions you can take with your increased take-home pay, whether it’s $14.50/month (for a single person with no dependents earning $20,000/year) or $109/month (for a married couple with no dependents earning $70,000/year). Chances are, last month you didn’t have a lot of money lying around begging to be put to use, and starting pretty soon you will have some non-spoken-for money to work with.

Don’t let this money just disappear into the ether! Allocate it to something specific. If possible, I recommend you set up an automated transfer from your checking account to wherever the money needs to go so that you relieve your willpower/memory of the responsibility of making the transfer manually.

Financially Responsible Action Items

Add to Your Emergency Fund

If you don’t yet have a dedicated emergency fund with a balance of $1,000 (or a higher target, e.g., three months of expenses), use the extra money to beef up your emergency fund! When (not if!) life throws you a curveball, your emergency fund is what stands between you and serious financial consequences.

Further Reading:

Start Investing/Add to Your Investments

YES it is possible and worthwhile to start investing with just a few dollars per month and it’s also amazing to even incrementally increase your existing regular savings rate!

Using this compound interest calculator to estimate, adding just $25/month to your investments for one year, at an 8% rate of return in 50 years that $300 will become over $13,000! If you kept up that higher savings rate for all 50 years, it becomes over $172,000! Sure, that’s not all the saving/investing you will need to do for your retirement, but even a small regular savings rate helps a lot.

Further reading:

Free Email Course: Investing for Early-Career PhDs

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Pay Down Debt

Similar to the investing example, a few extra dollars per month thrown at your existing debt can accelerate your progress to debt freedom.

If you currently had $500 in outstanding credit card debt and were making the minimum payment of $25/month, it would take you 23 months to pay off the card. But if you instead paid $50/month, you would knock out that debt in 11 months!

While you are not required to make payments on deferred student loans, if they are unsubsidized they are currently accruing interest. For example, if you had $10,000 of deferred unsubsidized loans at 6.8% interest and five years until graduation (and the end of the deferment), putting $25/month toward your loans would decrease the $14,036 you would have owed at the end of grad school to $12,255 (the $1,500 you paid decreased your debt by $1,781).

Further reading:

Invest in Your Career

Instead of using your money to increase your financial security or net worth directly, you could double down on your PhD training and invest in your career. Not many universities provide adequate career exploration and training for PhD students and postdocs, especially for “alternative careers.” You could use your increased cash flow to save up to attend a key conference in your field (if you’ve already used the funding available to you) or for a career path you’d like to get into. You could join a membership site like Beyond the Professoriate to help you transition out of grad school/your postdoc/your current job and into a fulfilling job. You could take a one-time seminar on negotiating a job offer; think of the ROI on that training!

Not-Financially-Focused-But-Still-Good Ideas

There are plenty of good ideas of what to do with money that will have a positive impact on your well-being rather than your bottom line specifically.

Treat Yo Self

Set aside a bit of time to consider what would give you the most ‘bang for your buck’ with this extra cash flow in terms of increasing your satisfaction in your life. You could use it on a monthly basis to take a fancy exercise class, have a special date night, enroll in a new subscription service, or care for a small pet. You could save up over the course of a few months or the year and take an extra flight to see loved ones, purchase new electronics (my husband is currently eyeing an ergonomic mechanical keyboard!), or update your wardrobe. What will mean the most to you is obviously quite personal, but whatever you choose, the key thing to do is to earmark the extra money for your choice so that it doesn’t get swept up in the rest of your expenses.

Give

At any point in 2017 or earlier, did you come across a non-profit or certain cause that you had the impulse to donate to, but you just didn’t have the available funds? This is your opportunity! You can now set up a recurring donation to a group whose work is meaningful to you. Non-profits really appreciate steady contributions that they can plan on. Alternatively, you could set aside a dedicated savings account with a monthly automatic savings rate that is earmarked for giving. My husband and I did this in graduate school for one-off donations that we would make a few times a year, and it was a wonderful feeling to be able to say “yes” when an opportunity presented itself without having to scramble or make hasty calculations.

Don’t let this opportunity to act intentionally with your increased cash flow pass you by! It might be quite a while before you get another increase in your take-home pay so make the most of it.

How Will Taxes for Grad Students and Postdocs Change Under the New Tax Law?

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The Tax Cuts and Jobs Act has been passed by both the House and Senate and signed by the president, and grad students are rejoicing that their tuition benefits were preserved in the final version. This is really the first opportunity we’ve had to figure out what the changes to the tax code will mean for graduate students and other individuals. In this post I’m running some numbers for a few different income levels and family configurations that are relevant to grad students and postdocs (similar to this article but for lower incomes). The good news is that it does seem that taxpayers at these lower income levels will see a reduction in their tax burdens as long as they take the standard deduction (or their itemized deductions are within about double of the standard deduction).

2018 tax for grad students and postdocs

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Tax Concepts and Terms

Many Americans don’t realize that our income tax structure is tiered. If your income falls in the 15% marginal tax bracket, for instance, it’s not the case that you pay 15% of your gross income in income tax. Part of your income (the amount that goes into your deductions and (currently) exemption) is not taxed at all. The next chunk of your income is taxed at 10%, and the last chunk is taxed (currently) at 15%. This would continue up the tax brackets if your income were higher.

Further reading: Marginal Tax Brackets, Deductions, and Credits Explained Graphically

A deduction is an amount of money that is excluded from your taxable income. You will choose to take the standard deduction or to itemize your deductions, whichever will give you the larger deduction. There are other deductions that fall outside of the standard/itemized deduction (above-the-line deductions), such as interest paid on student loans (up to $2,500), qualified education expenses if paid out of gross income, and contributions to a traditional IRA. The amount of the deduction multiplied by your marginal tax bracket is the amount that your tax will be reduced due to the deduction. For example, if you are in the 15% tax bracket and apply a deduction worth $1,000, your tax will be reduced by $150.

A credit is an amount of money by which your tax is directly reduced. A credit is worth the same amount no matter what marginal tax bracket you fall in, e.g., a $1,000 credit takes $1,000 off your tax bill. Examples of credits are the child tax credit, childcare expenses credit, and the saver’s credit. Your tax may even be reduced to zero due to credits, and refundable credits allow you to pay negative tax, i.e., receive money instead of paying money at tax time (non-refundable credits stop at a tax liability of $0). Sometimes a credit is applied at a certain percentage, e.g., a 20% credit on an amount up to $1,000 if worth at most $200 but would be less if you spent less on the expense in question.

Changes to the Tax Code in the GOP Bill

There are a few tax policy changes that will affect every American taxpayer, and many more that affect only high-income individuals or individuals in specific scenarios (e.g., taxpayer who previously had a large amount of certain itemized deductions, owners of pass-through businesses). In this post, I’m focusing on changes that will apply to all or many graduate students and postdocs. I have omitted noting at what income levels most of the benefits phase out, instead assuming that graduate students and postdocs will fall under those limits.

In creating this post, I have largely leaned on this great summary of the changes proposed in the GOP tax bill placed side-by-side with the current tax policies. Please note there is a typo in the individual tax rates table ($19,050 is correct, not $19,500).

Standard Deduction

The standard deduction is a set amount of your income that is tax-free. The alternative to the standard deduction is to itemize your deductions, which means documenting one or more types of deductible expenses throughout the year and choosing this deduction type if they add up to more than the standard deduction. (Some of common itemized deductions as of 2017 are medical and dental expenses if over 10% of your adjusted gross income, state and local income or sales tax, property tax, mortgage interest, charitable gifts, and unreimbursed employee expenses.)

One of the stated goals of the GOP with respect to this tax plan was to simplify the tax code, and itemizing deductions is one of the headache-inducing activities that is part of preparing a tax return for some taxpayers (less than 1/3 of households). Raising the standard deduction means that a larger amount of everyone’s income will be tax-free and that many fewer households will have to itemize to receive their largest deduction. However, some types of deductions that previously could be itemized have been eliminated or capped, which could negatively affect taxpayers who heavily relied on them to reduce their tax due. Two of these types of deductions are:

  • the state and local income/sales/property tax deduction is limited to $10,000 and
  • the mortgage interest deduction is now for loan sizes under $750,000.

Exemptions

In 2017, another amount of income was tax-free for each member of your household, which was your personal exemption. If you are single, you receive one exemption; if you are married filing jointly, you receive two exemptions; you also receive one exemption per dependent child. In 2017, each exemption is worth $4,050.

The GOP tax bill eliminates exemptions in favor of the larger standard deduction discussed above. Because the exemption amount scaled with the number of people in the household whereas the standard deduction is only applied once per household, this change is advantageous for smaller households (single, married couple) and disadvantageous for larger households (married couple with two or more children). However, the expansion of the child tax credit, discussed below, offsets this disadvantage for children up through age 16.

Tax Brackets

The lowest three tax brackets shift slightly under the new GOP plan. Their income ranges remain similar though not exactly the same (they change slightly every year anyway). The 10% bracket will still be taxed at 10%, the 15% bracket will be taxed at 12%, and the 25% bracket will be taxed at 22%.

source
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Keep in mind that when you find your marginal tax bracket (the highest tax bracket your income falls into) in these tables, you will use your taxable income less deductions and exemptions.

Child Tax Credit

The 2017 child tax credit is $1,000 per child for households under certain income limits and is partially refundable for some low-income households. In 2018, the child tax credit will be $2,000 under higher income limits and is fully refundable up to $1,400. The child tax credit applies to children up through age 16.

Income Tax Charts

For Single People and Married Couples Filing Jointly

I have created charts of the tax due for individuals and couples with various incomes under the 2017 and 2018 tax laws (assuming no children for now). I assumed the filers would take the standard deduction and no additional deductions (such as student loan interest or qualified education expenses).

Keeping in mind the income ranges of graduate students and postdocs, the ‘single’ table incomes range from $15,000/year to $50,000 with increments of $5,000, and the ‘married’ table incomes range from $30,000 to $110,000 with increments of $20,000.

 Income (x $1,000) 15 20 25 30 35 40 45 50
2017 Tax Due ($) 460 974 1,724 2,474 3,224 3,974 4,724 5,639
2018 Tax Due ($) 300 800 1,370 1,970 2,570 3,170 3,770 4,370

Income (x $1,000) 30 50 70 90 110
2017 Tax Due ($) 920 3,448 6,448 9,448 13,778
2018 Tax Due ($) 600 2,739 5,139 7,539 10,799

Income (x $1,000) 15 20 25 30 35 40 45 50
Single Absolute Reduction ($) 160 174 354 504 654 804 954 1,269
Single % Reduction 35 18 21 20 20 20 20 23
Income (x $1,000) 30 50 70 90 110
Married Absolute Reduction ($) 320 708 1,308 1,908 2,978
Married % Reduction 35 21 20 20 22

Under the above assumptions, graduate students and postdocs across these income levels will see a reduction in their tax burdens between 20 and 35%.

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Adjustments for Children

In 2017, if you have a dependent child under the age of 17, you can take the child tax credit for $1,000 per child. A credit is worth the same across the tax brackets because it directly reduces your tax due. In addition, you can also take an exemption for your dependent child (possibly up to age 23). In terms of the effect on your final tax burden, if you are in the 10% tax bracket the exemption is worth $405.00, if you are in the 15% tax bracket the exemption is worth $607.50, and if you are in the 25% tax bracket the exemption is worth $1012.50.

In 2018, the child tax credit has been expanded to $2,000 per child, but only up through age 16.

Download My Spreadsheet

You can download the spreadsheet I used to make the above charts with the complete tables. I have also included a sheet where you can estimate your own tax due by answering three questions.

Download the Tax Spreadsheet

Sign up for our mailing list to receive the spreadsheet I used to write this post, including a 3-question calculator for your own 2018 tax due.

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Do Your Own Calculations

This post skips over many of the nuances of the current and new tax law, so it does not substitute for plugging your numbers into a calculator (once full ones become available) or the math you will do in preparing your tax return. It is only intended to give an estimate of the tax due for ordinary wage earners (and, I presume, fellowship recipients) in the income ranges relevant to graduate students and postdocs. If you have automatic withholding on your paycheck, you should see changes to your take-home pay in early 2018. If you file quarterly estimated tax, your first payment is due in mid-April, so you have a few months for the IRS to adjust Form 1040-ES and to calculate your new tax burden.

Does Your University Use Section 117(d)? Please Take Our Survey!

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There have been more developments with the GOP tax plan (the Tax Cuts and Jobs Act) with respect to graduate students’ tuition benefits.

Last week, I gave my interpretation of how the House bill selectively eliminates one form of tuition benefit (tuition reductions) while leaving in place another (tuition scholarships).

Since my writing, an amendment was proposed to maintain the tuition benefits as they currently are, but it was defeated. The House bill is expected to be voted on tomorrow (Thursday, November 16, 2017).

You can find more information and action steps on the NAGPS website.

The Senate version of the tax bill has also been released in the last week, and it apparently does not include the same changes to graduate student tuition benefits that was in the House bill.

If both bills pass as currently written, they will go to a conference committee to create a compromise between the two versions. Then, the agreed-upon version will go back to the House and Senate to be voted upon. It is still important to voice your opinion about this particular provision of the bill to both your representatives and senators so that either the conference committee does not include changes to the tuition benefit in the final version of the bill or your Congresspeople vote against the bill if it does.

tuition tax survey

In the meantime, I am collaborating with two current graduate students, Andrew McCubbin and David Dixon, to figure out which universities are using section 117(a-b) vs. 117(d) for their tuition benefits. My purpose is not to discourage anyone from taking action opposing the TCJA but rather to help students with their personal financial planning and advocacy at the state, university, and department level, should the TCJA pass with the tuition benefit cut in place.

We have a survey up right now; would you please fill it out to the best of your ability and share it with your peers? In the next few days, we’ll start sharing our determinations from the survey on this results page. Also, feel free to comment on this post or email me if you have relevant information but don’t want to fill out the survey!

Which Graduate Students Will Lose Tuition Benefits Under the Proposed House Tax Bill?

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Update: Please fill out this survey on how your university handles your tuition benefit. I and some colleagues are trying to determine which universities use the method slated for elimination in the House bill.

The House GOP released their proposed tax bill (The Tax Cuts and Jobs Act) last week. Over the last several days numerous media outlets have covered the effect the bill would have on graduate students who receive “tuition waivers,” and graduate students have started organizing responses. Students at Carnegie Mellon, for example, calculated how much more tax students in various schools would have to pay if they lost their tuition tax benefits.

Here are articles I read that are most focused on the bill’s effect on graduate students:

lego tuition waiver tax
An excellent illustration of the possible impact of the Tax Cuts and Jobs Act on some graduate students from Lego Grad Student.

When I first started reading about this issue, I got the impression that under the bill all graduate students would see a large increase in their tax burden based on the reversal of their previously untaxed tuition benefits. The strongly worded headlines above certainly imply that graduate students would see such an increase in tax that continuing their educations would be impossible.

However, after spending many hours reading the current tax code, Publication 970, the proposed bill, university websites, news articles, and social media, I think that there is some confused information and hyperbole in the early reports, or at least what the articles are saying is being taken out of context by scared graduate students. However, I haven’t fully figured out what the implications of the new bill are, and I have several questions that are still outstanding. This post details my current thoughts on the issue. My intention is to calm some of the extreme fear I’m observing (in those who do not need to be so fearful), while still imploring you to voice your opposition to the proposed changes to tuition benefits and other effects on higher education funding.

To be clear, I don’t wish to see the net (after-tax) income of any graduate students drop as a result of tax reform. I believe all graduate students who have assistantships or who receive fellowships should be paid at bare minimum a living wage. Honestly, that’s a pretty low bar that not all universities currently meet. If a new tax bill is passed that increases the tax burden on graduate students, the universities should take steps to ensure that current graduate students’ net pay does not decrease. Otherwise, they do risk losing students they have already invested in or putting the students who remain in such a precarious financial position that they are distracted from their research.

But before you panic about your own personal finances, I think you should look carefully at how exactly you are paid. Not all graduate students will be negatively affected by this direct changes made by this bill (should it pass); I think the effects are going to be less widespread and less extreme than what the current coverage and conversations imply.

However, I do think you should lobby your representatives to maintain (more of) the current education benefits. (You just may not be able to use yourself as an example.) This is a moment in which graduate students and academics can band together to advocate for ourselves and academic research in general, whether or not we will be affected in our individual finances. The end of this post lists a few action steps. If the bill does pass, there will be more advocacy to be accomplished within your state and at your university to mitigate the bill’s effect on your and your classmates’ bottom lines.

grad student tuition tax bill

A disclaimer: I’m using a lot of secondary source information for this post. I did read sections of the current tax code and the proposed bill, but as I’m not a policy wonk or lawyer I freely admit that they are difficult for me to parse. If you find any mistakes, wrong conclusions, or omissions, please let me know so I can update the post. Accuracy is very important to me.

What Tuition Benefits Do Graduate Students Currently Receive?

We have to get technical for a bit here because the devil is in the details. I’ve seen students and articles using the terms “tuition waiver” and “tuition remission,” which do not appear in the proposed bill, Publication 970, or (as far as I’ve read) in the current tax code. So I’m going to avoid drawing conclusions from the common terms that are used in academia in favor of figuring out what is actually in the current tax code and bill.

There are three broad tuition benefits that I’ve known graduate students to use:

  • tax-free scholarships, fellowships, and tuition reductions (the most common)
  • the Lifetime Learning Credit
  • the Tuition and Fees Deduction

Basically, if you have any qualified education expenses such as tuition and required fees (the precise definition is not consistent), you can get some kind of tax break.

The proposed tax bill eliminates the Lifetime Learning Credit and the Tuition and Fees Deduction in favor of an expanded American Opportunities Credit (which can only be used in the first five calendar years of post-secondary education and therefore pretty much doesn’t apply to graduate students). This change will increase the tax burden on the students who previously used the Lifetime Learning Credit or Tuition and Fees Deduction, but that hasn’t been the main concern I’ve seen expressed by graduate students in the media.

The big kahuna here are the tax-free scholarships, fellowships, and tuition reductions. There are no monetary limits on these benefits like there are on the Lifetime Learning Credit and Tuition and Fees Deduction. Currently, any scholarship or fellowship that goes toward paying your tuition or qualified fees is not taxed. Also not taxed is any “tuition reduction” you receive. A tuition reduction is the difference between the sticker price tuition and the tuition you are charged.

Scholarships, fellowships, and tuition reductions are all lumped together in Chapter 1 of Publication 970 and Section 117 of the tax code, so I’ve never paid much mind to which is which exactly since they were all tax-free. But the proposed tax bill specifically targets one benefit and not the other.

Which Tuition Benefits May Be Lost and Which May Be Maintained?

The benefits are delineated in Section 117 of the tax code as qualified scholarships (117(a-b)) vs. qualified tuition reductions (117(d)). The tax bill proposes “striking subsection (d) of section 117” (p. 96), presumably leaving intact the other sections.

117(a-b): Gross income does not include any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization described in section 170(b)(1)(A)(ii). The term “qualified scholarship” means any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.

117(d): Gross income shall not include any qualified tuition reduction. For purposes of this subsection, the term “qualified tuition reduction” means the amount of any reduction in tuition provided to an employee of an organization described in section 170(b)(1)(A)(ii) for the education (below the graduate level) at such organization… In the case of the education of an individual who is a graduate student at an educational organization described in section 170(b)(1)(A)(ii) and who is engaged in teaching or research activities for such organization, [the above] paragraph shall be applied as if it did not contain the phrase “(below the graduate level)”.

How Can You Tell What Type of Tuition Benefit You Receive?

Section 117(d) explicitly applies only to university employees, which in the case of graduate students means teaching or research assistants. So if you are currently not a student-employee, i.e., you do not receive a W-2 at tax time, your tuition benefit should not change (which further argues for the superiority of fellowship funding over assistantship funding). (An analysis from a Berkeley student concurs this point.) However, I think it’s pretty unusual for a PhD student to complete her degree supported only by fellowships and training grants; most students serve as TAs or RAs for at least a few (if not all) of their semesters.

For student-employees, the question becomes: How do you know if your tuition and fees are paid by a qualified scholarship or a qualified tuition reduction? I do not have a good answer, and I’m hoping a reader can provide one. I don’t know that there is a different reporting mechanism, for example, for qualified scholarships vs. tuition reductions. (The 1098-T, if one is issued, should reflect the required tuition and fees charged to the students and the scholarships applied, but I don’t know if or how a tuition reduction would be reflected in that document. A qualified tuition reduction would not appear on a W-2.)

The best suggestions I can make at this point to figure this out for your situation are:

  • Re-read your offer letter and any employment contract you have with your university for the keywords “tuition reduction” vs. “scholarship,”
  • Check your Bursar/Cashier’s/Financial Aid account for the term “reduction,” and
  • Ask administrators at your university whether you receive a tuition reduction (e.g., the Bursar/Cashier’s office), pressing them to consult the university attorneys if they can’t point you to an answer.

How Common Is the Use of Section 117(d) for Graduate Students on Stipends?

One of the popular articles circulating by Vox pulled a figure from an infographic sheet the College and University Professional Association for Human Resources. (CUPA-HA also created this summary bulletin on Section 117, which makes it clear that section 117(d) is used by many types of university employees beyond TAs and RAs). In turn, the infographic is based on the 2011-12 National Postsecondary Student Aid Study.

vox 117d impact
An infographic from Vox on the number of students taking advantage of the tuition tax benefit in section 117(d).

The relevant number that the Vox article and CUPA-HA cite is that 145,000 graduate students benefit from section 117(d). (I was very curious about how they determined this number as it seems so wonky and specific to help with the unanswered question above, but the version of the 2011-12 National Postsecondary Student Aid Study that I could access did not contain this data. So I would like to dive further into those numbers, but I’m stuck for now.)

Taking the 145,000 students at face value (50% of whom earn more than $50,000/year, so not exactly traditional graduate students who would be unable to continue their studies due to an increased tax bill), what fraction of the total graduate student population is that?

I couldn’t find the answer directly, but the recent NSF survey of earned doctorates cites 54,070 doctorates awarded in 2014. Approximately 50% of PhD students never complete their degrees, so I would peg the current number of doctoral students in the US between 250,000 and 500,000. The 145,000 figure probably also includes master’s students, making the relevant pool of graduate students in the US even larger.

145,000 students using section 117(d) is certainly a large fraction of that total, but definitely not everybody as was my first impression. (Keep in mind, though, that an individual student may use section 117(d) during part of her time in graduate school, so the number using it at any given time is less than the total number who use it at any point.)

As far as how the proposed legislation will affect students at individual universities goes, I have two data points so far (please let me know if you’ve received a definitive answer from your university!):

The Dean of the Graduate School at Cornell released a statement regarding their policies. It reads in part:

 

Cornell University does not rely on 117(d) for favorable tuition-related tax treatment of funded graduate students, who are considered students, not employees, at Cornell.

Because Cornell pays graduate students reasonable compensation for teaching, research, or other services they provide to the university, Cornell graduate students receiving a tuition scholarship are receiving a qualified scholarship as described under sections 117(a), 117(b), and 117(c) of the current tax code, provisions which are not proposed for repeal in H.R. 1.  Thus, the proposed repeal of section 117(d), if passed into law, will not have an impact on how Cornell graduate students’ tuition scholarships are handled.

While the stipend for graduate students may be taxable under the current tax code, the tuition scholarship is not, and would not be affected by repeal of 117(d).  As H.R. 1 is written, Cornell graduate tuition scholarships will continue to be treated as qualifying (tax free) scholarships under 117 (a), thus, there would be no change from current tax law that treats these tuition scholarships for students as tax free.

I graduated from Duke University three years ago, and my understanding was that my tuition and fees were paid by scholarship. In my Bursar account, for example, I would see a tuition charge posted and then a payment posted on my behalf. I assume that payment was a scholarship, and I don’t know how a tuition reduction would have appeared. My recollection was (I think) confirmed by this page that discusses how graduate students are supported: “Full or partial scholarships: Cover tuition and fee expenses.” Tuition reductions are not mentioned. So I think that Duke students, like Cornell students, also do not depend on section 117(d) for their tuition tax benefit.

A Tentative Guess as to the Impact of the Proposed Bill

Here is my intuition on the matter, and I’m curious if it bears out or not. I formed it based on the scantest impressions and it involves far too much extrapolation.

I think perhaps tuition reductions are used mostly by public institutions, whereas qualified scholarships more so by private institutions. Therefore, eliminating the non-taxable status of tuition reductions may disproportionately affect public school students.

However, the large numbers I’ve seen in the media of the “devastating” effect of the tax bill on graduate students are based on tuition charged at private universities and by public universities for out-of-state students. (State policies regarding residency status for the purpose of in-state tuition vary. In some states, students are eligible for in-state residency after the first year. In others, such as Georgia, out-of-state students maintain their status for the duration of their degree.) Public, in-state students might see their taxes increase by hundreds of dollars or a thousand dollars, not the multiple thousands or $10,000+ I’ve seen quoted (except perhaps in the year when they are considered out-of-state students), which is if the full tuition and fees at some private universities were taxed at 12 or (partially) 25%.

I think that if tuition reductions are being used by private universities, they will have more wiggle room to pivot to either compensate their students differently or to pay them more. Well-funded departments and universities may also be able to increase their students’ pay to make up for the additional tax due (perhaps a one-time grant in the first year for out-of-state public university students). Therefore, I hope that the negative effects of the bill will be smaller and more limited in scope than currently anticipated.

Steps You Can Take to Advocate for Higher Education

All that notwithstanding, this is the time for advocacy. I fear that if the proposed tax bill passes as written, the additional tax burden will fall largely upon the students who are least financially secure, namely students in underfunded departments at public universities (earning, for example, less than $20,000/year). A $1,000 increase in their tax bill could easily push them into (further) credit card or student loan debt because their finances are so precarious to begin with. Even if your university does not rely on section 117(d) or you have a fellowship, please stand up for your fellow PhD students who are at risk.

  1. The NAGPS Call Congress Day is TODAY, November 8. You can find all the details about action steps on their Facebook event and website. You can still use their talking points as guidance after November 8.
  2. If you are represented by a union, participate in their lobbying efforts, or consult them on how to organize your own.
  3. Talk with your peers about advocacy steps you can take as a group at the national level and, if this provision of the bill passes, at the state, university, and department levels.
  4. Tell your family members, neighbors, college friends, mentors, etc. about this issue and ask them to advocate for PhD students as well.

In all of this, if you are currently taking advantage of a tuition reduction I encourage you to use your personal numbers (by what absolute amount and percentage your tax bill would increase) like this student did. These numbers are shocking and powerful.

Do you benefit from a tuition reduction or is your tuition paid by scholarship (or both)? Do you expect your tax burden to increase or decrease if the Tax Cuts and Jobs Act passes as written and by how much? How are you advocating for section 117(d) to remain in the tax code?