The Effect of the Tax Reform (and Iterations) on Graduate Students
Many of you have no doubt heard about the tax reform bill (H.R. 1) that Congress passed (November 16 and December 1 by the House of Representatives and Senate, respectively). You have probably also heard about the potential impact it would have on graduate students by increasing their tax burdens. In this article, we break down the issue and provide the latest updates on the impact of the Republican tax plan on graduate education.
You can find the details below, but here are the highlights:
– The tax reform bill passed the House and the Senate, but key differences need to be reconciled before it is implemented
– One of the key differences between the House and Senate versions of the bill related to the exemption/inclusion of tuition waivers in taxable income for graduate students
– Following widespread outcry from graduate students across the country, the proposal to include tuition waivers as taxable income has been dropped
– Remaining issue for higher education is the taxation of income from endowments (mostly private schools affected)
Overview – Existing Law
Currently, U.S. law states that individuals do not have to count tuition waivers as taxable income. In a situation familiar to those of us in academia, graduate students often work as teaching or research assistants at their universities in return for free tuition.
Section 117(d) of the U.S. Internal Revenue Code pretty much says exactly that: income does not include free tuition.
(d) Qualified tuition reduction
1 In general
Gross income shall not include any qualified tuition reduction.
This section goes on to define what a tuition reduction means, for employees of a university receiving education below the graduate level.
(2) 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 (or another organization described in section 170(b)1(A)(ii)) of—(A) such employee, or (B) any person treated as an employee (or whose use is treated as an employee use) under the rules of section 132(h).
Finally, it states that the same exemption applies to reduced tuition for graduate students engaged in teaching or research activities.
5 Special rules for teaching and research assistants
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, paragraph (2) shall be applied as if it did not contain the phrase “(below the graduate level)”.
For a side-to-side comparison of the current law, the House bill, and the Senate bill, follow this link: http://policy.asbmb.org/2017/11/27/how-the-current-tax-bills-compare/
Briefly, the House of Representatives version of the Republican tax plan (the Tax Cuts and Jobs Act) would remove Section 117(d).
Section 1204 (e) of the bill states:
1 Section 117(c)1 is amended— (A) by striking aasubsections (a) and (d)”…
As a result, the tax reform bill from the House would have eliminated the graduate student tuition waiver exemption. This means that the amount of tuition a student doesn’t pay (the tuition reduction) in return for work would be included in their gross income and taxed accordingly.
Example: A graduate student making $20,000 from her teaching position at a $60,000-a-year university would be taxed as if she received take-home pay of $80,000. Not only does this revision increase a student’s tax basis, it also bumps the student into a new tax bracket. a — meaning that what she owes goes afrom 12 percent to 25 percent. In short, our student whose $20,000 teaching stipend would have generated about $2,400 in taxes would now be facing a much heavier income tax burden of more than $14,000.
How will this bill affect GSBS students?
Since the final version of the bill produced through reconciliation between the House and Senate does not include any changes to the tax status of tuition reduction, students will not see a significant change in their tax burden. While the proposed changes were still being considered, it was not certain how the proposed changes by the House would affect students at UT Health. Different universities classify tuition waivers differently. If tuition is covered by a scholarship or fellowship, it would not have been taxed. If you have questions about how your tuition is handled by the university in the future, you can contact the university bursar (Bursar4Students@uthscsa.edu).
What can you do?
Currently, the main threat to higher education that remains in the final version of the tax reform bill is the taxation of university endowment income. This would not directly affect students in our program at UT Health, as the criteria for taxation would be met by schools with much larger endowments per student.
1) Follow this group on Facebook in order to stay up to date with the latest details and ideas for activism: https://www.facebook.com/SaveGradEd/
2) Contact your representatives (particularly House representatives) Find your representative here: http://www.house.state.tx.us/members/find-your-representative/
If you already know your San Antonio district, contact the following representatives:
Congressional District 20–Congressman JoaquAn Castro
Congressional District 21–Congressman Lamar Smith
Congressional District 23–Congressman Will Hurd
Congressional District 28–Congressman Henry Cuellar
Congressional District 35–Congressman Lloyd Doggett
Washington Post (https://www.washingtonpost.com/news/grade-point/wp/2017/11/12/im-a-grad-student-and-the-republican-tax-plan-could-cost-me-thousands-of-dollars/?utm_term=.afdce25aca22)
Chronicle of Higher Education https://www.chronicle.com/article/If-Republicans-Get-Their-Way/241659
About the Author
Catherine Cheng is a student in the Biology of Aging Ph.D. program. She is also an avid member of the Science Policy Interest group. The “Beyond The Bench” series features articles written by students and postdoctoral fellows at The University of Texas Health Science Center San Antonio.