Before I say anything, I have to clarify that I am not a tax expert. Don’t listen to anything I say. If you prefer TurboTax advice, read this link instead.
OK, taxes for grad students and postdocs can be complicated, especially dealing with fellowship stipends and tuition reimbursements.
Tuition and the 1098-T
The way Stanford sends 1098-T forms is via some really sketchy website 1098t.com, run by Affiliated Computer Services. They send the most spammy looking emails I’ve ever seen:
But it’s not spam. The 1098-T is basically worthless for grad students whose tuition is paid for by their PI or their department. In those cases, the students can’t claim the tuition on their taxes, because they didn’t actually pay it. In general, the “Amounts billed for qualified tuition and related expenses” box should have a very similar number as “Scholarships or grants”, but they may be significantly different if the department ends up paying your tuition in a different year than it’s billed. If you just input those incorrect boxes into your favorite tax software, it will calculate that you have a tax burden or deduction. That’s not correct. (Of course, those should cancel out over your entire grad career, because the department’s payments made on the prior year’s bill will eventually catch up. But it’s simpler to just report what actually happens, not what the 1098-T thinks is happening.)
I think the best thing to do is ignore the 1098-T. Instead, add up all the bills you get from the university that year, and add up all the payments to the university from your department, and report the difference that you actually paid. The difference should be what you actually paid: the fees billed directly to you and not reimbursed by the department. [Edit: Only required fees are eligible for a deduction.] This will be a small number, and probably won’t affect your taxes. Keep those documents in case the IRS comes calling!
[Edit: Of course, you must also report your stipend as income on your 1040 as a taxable scholarship.]
The most risky thing to do is claim that you paid tuition that you actually didn’t. I suspect that annoys the IRS. (Of course, this will be different for grad students who actually pay tuition. The Hope or Lifetime Learning credits are designed for those folks.)
Is a Fellowship Self-Employment?
Generally, the answer is no. And that’s a good thing, because you have to pay a 13.3% self-employment tax if you are self employed. Postdocs and grad students on fellowships may not be “employed” by their university, but they are not exactly self-employed, either. The way it’s been worked out, students and postdocs on fellowship generally pay their own income taxes (the university doesn’t take out taxes from their paycheck) in estimated taxes, but don’t pay the extra self-employment tax.
Do Postdocs Pay Social Security Taxes?
This question is more complicated. Students don’t have Social Security taxes (officially called FICA) withheld from their paychecks. But are postdocs “students” in the eyes of the IRS? Currently, they are. Universities usually don’t withhold FICA from postdocs’ paychecks. (Sometime, grad students have FICA withheld during summers, usually if they aren’t charged tuition and are paid as employees for the summer.)
There is some disagreement around this, and the IRS may start asking for Social Security payments from universities and postdocs. For instance, medical residents just lost a case against the IRS; now they have to pay Social Security taxes. It makes me wonder if postdocs will be next.
More Details
http://www.nationalpostdoc.org/postdocs/187-overview-of-tax-issues-for-postdocs
