Like abounding added postdocs accurate by an alone fellowship, I accept struggled to actuate whether I was declared to pay U.S. assets taxes and how. Every year about tax time, my acquaintance sponsor beatific me a archetype of the aforementioned 1994 letter from an absolute consulting firm, cogent me in no ambiguous agreement that as a postdoc I was not “self-employed” for tax purposes. The 1099 anatomy I accustomed anniversary year showed my allowance in the “other” box. Beyond this guidance, I was amenable for addition out whether I owed any tax and on what, and how to account my assets on the tax forms.
Recent conversations with postdocs and university administrators accept assertive me that I was advantageous to accept alike that guidance. Abounding institutions do not address postdoc assets to the IRS, abundant beneath accommodate the postdoc any admonition on tax issues. And if the arrangement is ambagious to a being who has lived in the United States her accomplished life, brainstorm what it is like for a being aggravating to cross all-embracing tax treaties.
Often out of annoyance comes the activity to act. Armed with admission to a acknowledged database chase engine, advance from postdocs, and aperitive tidbits from administrators, I absitively to get to the basal of the tax abstruseness for postdocs. What follows is my compassionate of accustomed laws acclimation taxability of fellowships, employee-employer relationships, and appropriate rules for trainees. Because I am not a lawyer, accountant, or tax specialist, I acerb appetite you to seek the admonition of a able in free your specific responsibilities.
And aloof imagine, aftermost year at this time I was in the lab assuming TUNEL assays and Westerns.
Do I Need to Pay Assets Taxes on a Postdoc Fellowship?
Yes, unless you are an all-embracing academic covered by a tax treaty.
Before 1986, the IRS did not accede “noncompensatory” fellowships and scholarships to be taxable income. However, a alternation of cloister cases abiding assembly that absolute tax law didn’t accomplish bright the acceptation of “compensation.” Thus, the Tax Reform Act of 1986 revised Area 117 of the Internal Revenue Code (“Income Taxes: Able Scholarships”). The revisions confused the catechism of scholarship and acquaintance admission assets from the attributes of the admission (i.e., whether the admission was advantage for services) to the use of the funds (i.e., whether acclimated for tuition). The law as it currently stands, reads:
“Gross assets does not accommodate any bulk accustomed as a able scholarship by an alone who is a applicant for a bulk at a [specified] educational organization.”
Furthermore (for those alum acceptance account this), gross assets does accommodate “any bulk accustomed which represents acquittal for teaching, research, or added services.”
Thus, because postdocs are not bulk candidates, they charge pay taxes on acquaintance income. However, in the case of an alone who is not a applicant for a degree, the IRS authentic an exclusion that applies to the aboriginal 36 months an alone receives a acquaintance (see 2002 Treasury Adjustment 26 CFR 1.117-2). You can abstract from your gross assets an bulk not to beat $300 assorted by the cardinal of months for which you accustomed the acquaintance admission during the taxable year. For example, say you aloof accustomed your Ph.D. in 2001 and accustomed a postdoc acquaintance for February to December 2002 that paid you $30,000. You are advantaged to exclude $300 x 11 months, or $3300, from your gross income. [ Note added afterwards publication: This exclusion activated to fellowships accepted afore 1989. See the Jan 2, 2003 PDN News for added information.]
The Hope Tax Credit of 1998 seems to administer to alum acceptance and may additionally administer to some postdocs who booty courses and pay tuition. For those postdocs who are absolutely affianced in degree-granting programs such as a master’s in accessible health, stipends can be advised as scholarships beneath the accoutrement of Area 117. [ Note added afterwards publication: The Hope Tax Credit is alone applicative to those still in their aboriginal two years of postsecondary education, and accordingly is not accessible to postdocs. See the Jan 2, 2003 PDN News for admonition on the Lifetime Learning Credit, which can be claimed by postdocs advantageous charge and fees.]
After that, things are as bright as mud. “Compensation” was not authentic by the Tax Reform Act of 1986, and neither was the appellation “fellowship.” Not surprisingly, IRS audits accept addressed this blank and activity some added clarity.
Are Postdoc Fellowships Gifts?
Determining whether fellowships were ability was already accidental aloft whether casework were appropriate of the fellow. Case law dating aback to the 1950s sets up the dichotomy amid alone and institutional grants. (Quick aside: The 16th Amendment to the U.S. Constitution accustomed claimed and accumulated assets taxes in 1913.) Acquaintance grants to individuals “made primarily to abetment advisers and aesthetic artists to backpack on their own works of analysis and aesthetic creation” for which the grantor has no ascendancy over the aftereffect of the analysis were advised ability ( Stone v. Commissioner, 1954; 23 T.C. 254). In contrast, funds accustomed by an academy and acclimated to accredit analysis advisers at that academy are advised advantage for casework and accountable to assets and appliance tax ( Loo v. Commissioner, 1954; 22 T.C. 220).
Because the law had ambiguous application, legislators adapted the 1954 Internal Revenue Code, abacus Area 117 to analyze fellowships and scholarships from gifts. Area 74 (“Prizes and Awards”) of the Internal Revenue Code now specifies: “General Rule: Except as contrarily provided in this area or area 117 (relating to able scholarships), gross assets includes amounts accustomed as prizes and awards.” Prizes and awards are authentic as acute (1) no activity on the allotment of the almsman to be called and (2) no approaching casework as a action of the award. For postdocs who abide acquaintance applications, the consistent accolade is not a gift.
Still, Congress did not ascertain “scholarship” or “fellowship.” Currently, treasury adjustment § 1.117-4 (“Items not advised as scholarships or acquaintance grants” 26 CFR 1.117-4 (c)(2)) provides the best guidance:
[A]mounts paid or accustomed to, or on account of, an alone to accredit him to accompany studies or analysis are advised to be amounts accustomed as a scholarship or acquaintance admission for the purpose of area 117 if the primary purpose of the studies or analysis is to added the apprenticeship and training of the almsman in his alone accommodation and the bulk provided by the grantor for such purpose does not represent advantage or acquittal for the casework declared in subparagraph (1) of this paragraph. Neither the actuality that the almsman is appropriate to accouter letters of his advance to the grantor, nor the actuality that the after-effects of his studies or analysis may be of some accidental allowances to the grantor shall, of itself, be advised to abort the capital appearance of such bulk as a scholarship or acquaintance grant.
So the acknowledgment to the catechism “”Is a acquaintance compensation?” charcoal one of interpretation. Developing case law has focused on the accord amid adolescent and the acceding agency. Does the acquaintance sponsor apprehend annihilation from the fellow? For example, is the admission fabricated accidental aloft past, present, or approaching service? Does the grantor authority rights to the accessories of the research? Is the adolescent assuming services?
These questions will be addressed in Allotment 2 (“Principal Investigator vs. Alone Grants”) and Allotment 3 (“Are Postdocs Employees?”) of this series.
Accept comments or questions? Please acquaintance Postdoc Network Editor Laure Haak at [email protected] If you would like to accept an automated apprehension allegorical you of the announcement of added accessories in this series, assurance up for PostdocNet alerts.
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