jump to navigation

Wanted: page of tax info for NSF fellows March 23, 2010

Posted by Noah Snyder in inside baseball, NSF madness, things I don't understand, WANT.
trackback

So I think something that the world needs is a page with important bits of knowledge and tricks concerning having an NSF graduate or postdoctoral fellowship and paying taxes. The somewhat tricky thing is that you’d need an actual lawyer involved at some point in the process. Is this something one could try to convince the NSF’s accounting department to do? Presumably it’d be easy for the right person to do, and would save a lot of time for NSF Fellows who could then do math instead of trying to figure out taxes.

Here’s some examples of the sort of questions this page could answer:

  • In what ways is NSF income taxable? (My understanding, which is not legal tax advice, is that you must pay income tax on this money by writing “SCH $$$” on the dotted line next to box 7, but you do not need to file a Schedule C nor a Schedule SE nor pay FICA/self-employment tax.)
  • Is it possible to efile when you have taxable scholarship and fellowship income? Or do you have to print out the form in order to write “SCH $$$” on the dotted line next to box 7? (The rumor in the dept. today was that someone knew how to get TurboTax to enter the SCH thing, but none of us actually there knew.)
  • How is the “research allowance” treated? My understanding, which again is not tax advice, is that since this is only for reimbursement it is not income.
  • How are health care costs treated? At Columbia they apparently treat your health care as taxable income issuing you a 1099-MISC for non-employee compensation. This seems contrary to my readings of both the 1099-MISC instructions (where one of the criteria for issuing a 1099-MISC is that there were services rendered) and to section III.B.3. of the NSF Postdoctoral Fellowship Solicitation. But presumably Columbia’s accountants know what they’re doing. Nonetheless it’s extremely difficult to figure out what this money means. Is it FICA taxable? Do I have to file a Schedule C? What are my business expenses if it’s a business that didn’t actually do anything but yet was given money for no reason and then spent all its money on my healthcare? Why didn’t Berkeley issue me a 1099-MISC for the portion of my fees that went to medical care in graduate school? Is it possible to know in advance which schools treat health insurance money this way? If it’s self-employment money then I could wind up paying 15% FICA + 9% State and City + 25% Federal of $6K because of Columbia’s accounting.

Anyone have other good questions? Know anywhere to find answers to these questions?

About these ads

Comments

1. L - March 23, 2010

I would _love_ to have an answer to the first question, even if it means refiling my taxes from the last two years. The good people at the NSF refuse to help, of course, and no recipient I’ve talked to has any real idea either.

2. Ben Webster - March 23, 2010

There should be a general info page which includes tax information but also other things like: never snail mail to the NSF; fax and confirm receipt of the fax by email.

3. Mary O'Keeffe - March 23, 2010

I can answer the first question. It is definitely possible to efile a tax return that declares taxable scholarship income. Our Volunteer Income Tax Assistance (VITA) site does this routinely without any difficulty. We have done this for taxable graduate stipends as well as taxable undergraduate scholarships. (Little known fact: all scholarship income is taxable unless it is used to pay “qualified tuition and expenses.” Living expenses, including room and board paid to a college or university, are NOT qualified expenses. See IRS Pub 970 for more details.)

We use professional software provided by the IRS (TaxWise), but retail software ought to be able to handle this as well. Most NSF Fellows are eligible for the IRS Free File program, so if you can’t figure out how to make TurboTax work for you, you can feel free to try other programs as well.)

This is a very good post. There is a lot of misinformation circulating out there, much of it promulgated by people from my generation, who do not realize that tax law has changed significantly since they were in grad school. Prior to 1986, all scholarship and fellowship income was tax-free, including NSF stipends. However, since then, only the part of scholarships/fellowships applied to narrowly defined tuition and fees is excludible from income. A surprising number of faculty and administrators are still confused about this.

4. Dylan Thurston - March 23, 2010

TurboTax is of course only an interface to IRS’s underlying system. The fill-in PDF forms do include an explicit blank for the SCH $$$ thing (if I remember right), so I would suspect that e-filing would allow that as well, and it’s just a matter of fighting with TurboTax…

5. David - March 23, 2010

TurboTax does indeed do everything for me. Federal efiling is free this year, even if you have a fellowship (last year you had to pay extra for anything beyond “basic” taxes, and fellowships were “advanced” taxes). CA efiling is not free, so I had TurboTax print all the forms for me to snail mail to the Governator.

I’m with you, though: I’ve probably lost more than a day just to financial confusion with my fellowships and tax situation (not including the time it takes to fill out the forms normally). I do my wife’s taxes, too, so see how easy paying taxes can be. Even though she’s a graduate student, too, with the same investments as me, it takes about 10 min to fill out and file hers.

Though it was still a miserable experience, I have no idea how I would have done my taxes w/o TurboTax. Next year, I’m going to step it up and pay my estimated tax, too! This year the penalty was substantial (at least compared to my stipend).

6. Noah Snyder - March 23, 2010

After much investigation my tentative conclusion is that I am running my own business whose income is exactly Columbia’s portion of my healthcare. The full amount of this then gets subtracted from my personal income (but is not business expense!) since I am then a self-employed person paying my own health care premiums. So the upshot is 15% FICA, but no federal or state income tax. Oddly this is the reverse of the NSF income which is no FICA but all income tax.

7. anon - March 23, 2010

As far as I understand it, reporting fellowship income on the “SCH $$” on the line next to the box is correct. (See http://www.irs.gov/taxtopics/tc421.html .) Fellowship income does not count as earned income for the Earned Income Tax Credit, though (especially relevant for graduate students with children), and in multiple years the IRS seemed to ignore the “SCH $$” on my return when entering the numbers from my 1040 into their system. This caused the EITC amount to be calculated wrongly, and they sent me a refund that was too large, and I had to deal with the hassle of convincing them to fix their error and take back the extra money they paid me before they started charging me interest on it.

I have efiled with fellowship income in multiple years. However, this did not prevent the EITC error.

From my understanding, since the NSF does not require any accounting from postdoctoral fellows as to how they spend the research allowance, the tax code requires that it be treated as taxable income, just the same as the standard fellowship payments. The webpage at http://www.irs.gov/govt/tribes/article/0,,id=185502,00.html seems to be applicable –the NSF research allowance certainly doesn’t satisfy the “required to substantiate expenses with receipts” condition. Unfortunately, this means a big increase in taxable income and income tax in the year that the research allowance is paid.

8. Jim Humphreys - March 24, 2010

This is definitely a useful discussion to have. Comments
by Mary O’Keeffe are especially relevant to the immediate
problems people are having. Like her I have a longer
perspective on the evolution of the tax code over recent
decades. The fact is that the overall tendency has been
to shift federal (and some state) tax burdens from the
wealthy to the working “middle class” including salaried
professionals without inherited income or big investments.
At the same time the tax code has become increasingly
complicated as politically attractive targeted tax credits
proliferate, to placate angry groups of middle class
voters. Whatever your political views may be, it’s well
to understand the big picture. Meanwhile you might
encourage any rich relatives you have to die this year
while the federal estate tax is zero ;-)

9. Ben Webster - March 24, 2010

anon-

Not that I’m doubting your information, but are you sure the FAQ for Indian Tribal Governments is applicable in this case?

10. Noah Snyder - March 24, 2010

@7: Good find in the IRS info. However, I disagree with what you say about the NSF failing to meet the “required to substantiate expenses with receipts” condition. See III.B.2 “The Fellow should keep records to document the expenditures.” In fact, my recollection (which I seem to be having trouble locating at the moment) is that not only are you “required” to keep receipts, but you’re also “required” to follow all NSF rules, for example flying american flag carriers. I put “required” in quotes because the only enforcement mechanism is that they’re allowed to audit you, which as far as I know they don’t actually do.

11. anon - March 24, 2010

Sorry; I didn’t look closely enough at where on the IRS website I was. The same rules for general employers are given at http://www.irs.gov/publications/p463/ch06.html .

In that, it states that “adequately accounting” for expenses means giving your employer a record of expenses and returning any excess within a reasonable time (it suggests 120 days). While it’s possible to argue details (Fellows aren’t technically employees of NSF), the advice I was given was that since the NSF doesn’t require Fellows to actually submit this documentation, the advance must be treated as a nonaccountable plan and reported as income.

(Realistically: the NSF dumps the entire amount into your personal bank account, and does not ever ask you what you do with it. I find it hard to imagine that the IRS will not treat this like income if you’re audited.)

12. Jesse B - March 25, 2010

I have a question along these lines, and can’t get an answer I’m comfortable with from the local tax professionals…

Background: I am a PhD student on a NSF GK-12 fellowship. This money comes to the university and I am paid by them, not NSF. My monthly stipend is easy to deal with. It’s taxable. The part I’m having an issue dealing with is the $10,500 for educational expenses. The school reports it all as a scholarship on a 1098-T. About $5400 goes to tuition, so that isn’t taxable. That leaves $5100 that I can use for other education and research expenses. I have to submit a request for money to be released, and the managers of the grant are pretty lenient about what they approve. Once it is approved and purchased, I submit a receipt. I have purchased my health insurance, a computer, software, and field gear (I’m a biologist in Texas, so I only have to deal with federal taxes btw). Because most of this money was spent in 2009 (I was on the fellowship the year before also), if this money is taxable, it raises my declarable income substantially. (I didn’t deal with it for the 2008 taxes because I hadn’t spent much of the money, and it only raised my income a little)…

So, can I count the computer, software, books, and field gear against that additional scholarship income? (I’m pretty sure the part that goes to health insurance gets counted as income reduction…) I use this equipment to perform my research. I have to take research units each semester, and the money has to get approved before I can use it. Does it fall under “Qualified Educational Expenses”. It generally doesn’t go to travel (there is a separate fund for that).

I have found conflicting information at the IRS. Publication 970 says, that research expenses are taxable, but the Taxable Fringe Benefit Guide says that payment for independent research is excluded from income.

Thanks in advance,
Jesse

13. Mary O'Keeffe - March 25, 2010

@JesseB: here’s what I would tell a graduate student in your situation who came to our VITA site. If you are a full-time degree candidate AND, then Section 117(b) of the Internal Revenue Code allows you to exclude the part of your scholarship funds spent on books, equipment, and supplies REQUIRED for your course of instruction.

So, for example, RPI is a school that requires all undergraduates to purchase a laptop computer as a condition of enrollment. RPI students who spend scholarship funds on that required computer therefore do not need to include it in their taxable income. On the other hand, a computer is a “nice to have but not strictly required” item at most other colleges, so I would advise their students that scholarship funds spent for such purposes still need to be included in taxable income.Same goes for books and other supplies. If a professor specifies a textbook as required, then students can exclude scholarship funds used to purchase the book from their taxable income. However, scholarship funds spent to purchase “supplementary recommended texts” are not excludible from income.

So if your research units are part of your “course of instruction,” then I would be comfortable advising you to exclude scholarship funds spent for any required books, supplies, and equipment. Since the amounts of money are substantial, I would advise you to save copies of syllabi or other documents to support your claim that the book or equipment in question was actually required for your course of instruction. If your research units do not have syllabi, perhaps you can print out a copy of a department webpage that specifies equipment that grad students must acquire or perhaps you can ask a professor to write a brief letter stating that the equipment was required for your course of study.

On the other hand, if the equipment and books you purchased fall into the “not required but nice to have” category, then I’d advise you to declare the scholarship funds spent on those items to be taxable income. The only possible mitigation in that case would be to treat the amounts spent for those recommended items as miscellaneous itemized deductions on Schedule A if you choose to itemize. That’s not much help for most grad students, since they rarely itemize deductions, but that is just the way the tax law cookie crumbles in your particular situation.

If it helps you feel any more philosophical, I can tell you that tax law treats you far more favorably than other citizens with comparable incomes from plain vanilla W-2 wage income.

14. Mary O'Keeffe - March 26, 2010

This discussion has inspired me to post some information on my tax policy and practice course website, including links to the Princeton and Cornell grad student tax advice pages, which strike me as accurate, clearly written, and helpful. I’d welcome any suggestions in the comments there.

http://bedbuffalos.blogspot.com/2010/03/it-shouldnt-take-phd-in-math-from.html

15. Jesse B - March 28, 2010

@Mary, Thanks for your response. My university falls under the category of being unwilling to give ANY tax advice… BTW, I do itemize my taxes, and we are specifically paid as research assistants by the university.

I have a couple of followup questions:

-You mentioned miscellaneous deductions on Schedule A. Would this information come from the Employee Business Expenses from form 2106? The computer and books aside, most of these costs are things we purchase specifically for work. The software isn’t something I’d use otherwise. The field gear, chemicals or microscope parts are the same.
-My girlfriend is on the same fellowship but additionally received a research award from a national society. They reported this on a 1099-MISC, and told her to file a Schedule C – Profit or loss from business to deduct the money spent on those research supplies. As I said above, we are officially Research Assistants to our university, and Schedule C does have a category for scientific and technical services ( #541700 for research). We aren’t a DBA, we don’t have business tax ID#s. Is this a more appropriate place to deduct the expenses we incurred for work?
-Does the fact that this “income” is reported on a 1098-T instead of a 1099-MISC change things?

16. Mary O'Keeffe - March 28, 2010

@JesseB, it’s not surprising that your university does not want to give tax advice. It’s very easy to make a mistake and there are many complications, especially for universities that have many international students on student visas. (If you think your tax situation is complicated, you should see theirs! They need to file US tax returns with special provisions determined by international tax treaties between the US and their countries of origin.)

Your university understandably does not want to give incorrect or misleading advice for many reasons, including the potential for embarrassing publicity or exposure to lawsuits from students who relied on erroneous advice. There are gray areas of the law where nobody is eager to tread with advice that they can’t 100% be sure is correct. This is probably why the NSF would not want to give such advice either.

Bear in mind that our tax system is so complicated that Treasury Secretary Geithner had notorious difficulties with his own tax returns prior to his nomination, as did Charles Rangel, the former Chair of the House Ways and Means Committee, the committee charged with responsibility for drafting the language of the tax code! The Commissioner of the IRS, who has degrees in law and public administration, recently stated that he hires a tax pro to prepare his own tax return.

Also bear in mind that Congress is constantly passing new tax laws so any advice they might give could quickly grow out of date. As the National Taxpayer Advocate recently pointed out, Congress has passed almost 4,000 tax law changes in the past decade and over 500 in the last year alone, which is an average of over one per day. And new tax laws are especially problematic, since they have yet to be interpreted by the IRS and the courts.

I am a member of an email list for tax law professors and despite their expertise, they have expressed reluctance to provide specific tax advice to their students. Bear in mind that I am not an attorney, just a public policy economist with a long-standing interest in tax policy who is certified as a VITA volunteer tax preparer. As a result, my students and I are protected against lawsuits as long as we operate within the scope of our IRS volunteer certification. That means not giving answers to specific questions like yours without conducting an extensive interview in which we would have to ask a lot more questions.

That said, I can make some general observations, which may be helpful to you or others. To avoid giving the impression that I’m giving specific tax advice for your particular situation, I’m going to give examples of analogous situations that may help you answer some of your own questions.

1) Very few graduate students are in a position to benefit from itemizing deductions, which means that Schedule A and Form 2106 are rarely helpful to them. The reason is that their standard deduction is almost always greater than their itemized deductions would be. (The standard deduction is now $5,700 for most unmarried taxpayers.) Our VITA site serves taxpayers with incomes up to $49,000 and we have never seen anyone for whom it was worthwhile to itemize unless they were homeowners.

2) Schedule C deductions are more valuable to taxpayers who qualify for them than Schedule A Form 2106 miscellaneous deductions would be. That’s because Schedule C deductions are available even to taxpayers who don’t itemize. Also, even itemizers are not allowed to claim the full amount of their Schedule A deductions because only the excess over 2% of adjusted gross income can be deducted. By contrast, the full amount the deductible expenses can be claimed on a Schedule C.

3) Many issuers of 1099-MISC, 1098-T, and W-2 forms make errors in issuing those forms. They may get the amounts wrong and/or they may use the wrong form. For that reason, the form that a payor used to report income to the IRS does not necessarily determine the appropriate tax treatment of the item in question.

To take a common related example, it’s common for employers to issue a 1099-MISC to an employee, when they really should have issued a W-2, because the person in question really was an employee, not an “independent contractor.” A lot of employers find it more convenient to issue 1099-MISC because they don’t want to bother with withholding, benefits, paying unemployment taxes and their share of FICA, etc. The fact that a payer may have used an incorrect form to report the income doesn’t change the legally correct tax treatment of the income.

4) In practice, there are many gray areas where it may not be clearcut whether a person is an employee or an independent contractor. The IRS often takes years to make a ruling, leaving both the payor and the payee dangling in uncertainty in the meantime.

http://www.irs.gov/businesses/small/article/0,,id=99921,00.html

5) Filing a Schedule C does not require a DBA.

“DBA” stands for “doing business as,” which means that you are operating an unincorporated business under an assumed name.

So, for example, let’s assume that Betty Jones is self-employed and runs a home daycare business. If she wants to advertise her services to the public as “Tender Loving Care,” and have her clients write checks out “Tender Loving Care,” she needs to file a DBA with an appropriate state or local government body. But if Betty Jones just wants to do business as a home daycare provider under her own name as “Betty Jones,” then she doesn’t need to file a DBA. Either way, she would file a Schedule C.

6) You wrote that you don’t have a “Business Tax Id Number.” By that, I take it you mean that you don’t have what the IRS calls an EIN (“Employer Identification Number.) A taxpayer doesn’t need one to file a Schedule C. If you look at the Schedule C form, it asks for your Social Security Number (SSN) on the first line and then on the third line it asks for your “EIN, if any.” A taxpayer who does not have an EIN can leave it blank.

A Schedule C-filer only needs an EIN if she has employees of her own. So, going back to Betty with her home daycare business, if she employs helpers to assist in caring for the children in her daycare, then she needs an EIN. But if she does all the work herself, she does not need an EIN.

On the other hand, anyone who wants an EIN can easily get one, for free and for very little hassle. Betty might want an EIN, if she doesn’t have any employees. Why? Because then she can give that EIN to her clients to report on THEIR tax returns if they are claiming their daycare expenses. (Alternatively, she has the option to give her clients her SSN, but she might be understandably concerned about identity theft problems.)

The IRS makes it very easy to apply for an EIN using this form:

http://www.irs.gov/businesses/small/article/0,,id=98350,00.html

7) If the business is pretty simple, there is an alternative to the Schedule C called a Schedule C-EZ, which might be simpler and worth investigating.

8) Any taxpayer who comes into our VITA site with a 1099-MISC but who says that their official title is a “________ Assistant” is going to raise a lot of red flags in my head. The use of the word “Assistant” in a title suggests an employee relationship, not a self-employed status. I’d ask a lot of specific questions, and there’s a reasonable probability that we would be required to refer the person to a professional tax preparer, because it would be outside the scope of our certification as a VITA site. As I mentioned above, there are a lot of gray areas in determining whether a taxpayer should be classified as an employee vs. being classified as self-employed, and we are not supposed to be venturing into uncharted areas with our taxpayers.

That said, I am still free to comment on the implications for public policy. We need a simpler tax code.

17. Jesse B - March 28, 2010

Mary, again thanks for the information. I do own a home so I itemize, and the only 1099 income my GF has is a small student research grant, from a national society. I think she safely fits the independent contractor definition for that. Your point about there being some gray area in the code is well taken. I just want to make sure I don’t do something that causes an audit…

Thanks!
Jesse

18. Paul Baginski - April 1, 2010

I’m also facing these tax complications this year on account of my NSF IRFP postdoc. The thing I find frustrating is that much of the documentation talks about scholarships and fellowships *for students*. As a postdoc, you are no longer a student, because you are not enrolled in a degree-granting program. The postdoc money is a research grant, but finding out how to file this appropriately has not been easy, and as others have mentioned, the NSF is mum and previous people in the program have very mixed answers.

The difference between a scholarship/fellowship and the postdoc is that the money is not paid to achieve a degree or an education purpose, but to achieve a proscribed research objective. It seems to still fall under the terms of an IRS-defined “grant” (http://www.irs.gov/charities/foundations/article/0,,id=175078,00.html ), though I’m not sure which category it falls in. In my letter, the NSF stated:

“The NSF does not report this to the IRS. You will not receive a W2 or a 1099. We do expect you to contact the IRS and tell them about the grant and ask if you are to pay taxes, to find out how much and to then pay them. It is a very good idea to do this before you start, just in case you need to set money aside as you go along. When you contact the IRS, tell them that you are not an employee of NSF or of the Federal Government. You are not paid a salary, but receive a living allowance and expenses to do research.”

Now, I wish I had already contacted the IRS and not waited until now to deal with it, because I don’t know how this qualifies. My big question relates to the following: Grants to Individuals (http://www.irs.gov/charities/foundations/article/0,,id=137396,00.html ). It certainly seems that the NSF grant applies, as long as 1. the NSF has qualified as having IRS-approved granting procedures (I’m fairly sure this is true) and 2. the grant falls under condition 2.a. or 2.c (2.b. definitely does not apply — I looked up the tax code). This almost would make it seem like full NSF grant is tax-deductible, or at least everything beyond the living allowance.

As for travel and research expenses, the IRFP operates differently than the MSRFP, too, because you are not given an advance lump sum, but rather reimbursed each time after submitting an itemized expense report. I think this allays the concerns of commenter #11, making the travel expenses for the IRFP an “accountable plan”, but admittedly I haven’t gotten that far in my investigations…

19. Paul Baginski - April 1, 2010

I do know that government grants qualify in weird ways tax-wise. When I had a DHS fellowship in grad school, they would send a 1099-MISC, so that the income would get reported on line 21 of the 1040 (with the words “Non-qualified Fellowship” or something like that) instead of line 7, where fellowships normally get reported. They specifically told us which line to report it on, because it wasn’t technically a fellowship, but beyond that offer no tax advice. This would then come into conflict with 1098-T’s from Berkeley where they did treat it as a standard fellowship.

20. Paul Baginski - April 1, 2010

Another perhaps relevant link is how the IRS treats Fulbright grants, which can be purely for research purposes:

http://www.irs.gov/businesses/small/international/article/0,,id=149708,00.html

They’re pretty detailed here and the situation is fairly similar to the NSF postdocs. My understanding (none of what I have posted is legal tax advice) is that people have correctly concluded that the postdoc must be reported on line 7 with a SCH qualification.

21. Paul Baginski - April 1, 2010

Ok, I promise not to flood this entry with more comments, but I’ve ultimately found the following three-piece segment by the AAAS on postdoc funding and legal issues to be really enlightening:

http://sciencecareers.sciencemag.org/career_magazine/previous_issues/articles/2002_11_15/noDOI.15669029089637599098

http://sciencecareers.sciencemag.org/career_development/previous_issues/articles/2100/postdocs_and_the_law_part_ii_principal_investigator_versus_individual_grants/

http://sciencecareers.sciencemag.org/career_development/previous_issues/articles/2100/postdocs_and_the_law_part_3_are_postdocs_employees/

The articles clarify, for example, why my DHS fellowship was sending me 1099-MISCs: since I was required to perform an internship for them, the fellowship was not technically a fellowship because it was very explicitly compensation for services rendered. NSF fellowships (both MSPRF and IRFP), however, are fellowships in the eyes of the IRS since the expectations on the part of the grantor are too “vague”. So these fellowships should be filed as such and are taxable income, but not wages since you are no one’s employee, including yourself (i.e. you are not self employed). Again, this is not legal tax advice and follows from the article.

22. Paul Baginski - April 1, 2010

Ok, I promise not to flood this entry with more comments, but I’ve ultimately found the following three-piece segment by the AAAS on postdoc funding and legal issues to be really enlightening:

http://sciencecareers.sciencemag.org/career_magazine/previous_issues/articles/2002_11_15/noDOI.15669029089637599098

http://sciencecareers.sciencemag.org/career_development/previous_issues/articles/2100/postdocs_and_the_law_part_ii_principal_investigator_versus_individual_grants/

http://sciencecareers.sciencemag.org/career_development/previous_issues/articles/2100/postdocs_and_the_law_part_3_are_postdocs_employees/

The articles clarify, for example, why my DHS fellowship was sending me 1099-MISCs: since I was required to perform an internship for them, the fellowship was not technically a fellowship because it was very explicitly compensation for services rendered. NSF fellowships (both MSPRF and IRFP), however, are counted as regular fellowships because the services rendered are too vague. Again, this is not legal tax advice and follows from the article.

23. Mary O'Keeffe - April 1, 2010

I agree that there’s not a lot of explicit tax guidance provided on the IRS website for postdoc fellowship holders, though the Fulbright treatment does seem helpfully analogous.

Here is a 1994 Tax Court Case Opinion might be a very helpful precedent to research for anyone interested in investigating the issue further:

Spiegelman vs. Commissioner of the IRS Tax Case 15829-92

Spiegelman held a postdoc at Columbia (a “Lamont postdoc” administered by Columbia, which required no teaching or specific research services rendered to the institution. He was free to pursue research of his own choosing.) Columbia issued him a 1099-MISC.

He attempted to report the income as subject to income tax but not to self-employment tax.

The IRS, seeing the 1099, objected to his return and assessed self-employment tax.

He pursued the issue in Tax Court and won. The reasoning in the Court Opinion seems to be a very useful resource.

Most university libraries have Lexis/Nexis subscriptions where you can easily look up the full text of the court’s written opinion.

24. Paul Baginski - April 2, 2010

Yes, the Spiegelman vs. Commissioner case is one of the cases mentioned on the third page of the AAAS articles I listed above. It’s the precedent most commonly used for determining that postdocs who aren’t deemed to be rendering services (i.e. aren’t required to teach, or work somewhere or cede patent rights on potential research) are not considered to be self-employed. Thanks for filling out more details of Spiegelman’s situation–it’s helpful to know what he had to do.

25. Mike Shulman - April 5, 2010

@Paul, the link you gave in #18 on “Grants to Individuals” is specifically for private non-profit organizations, which the NSF is not. Do you think there is an analogous provision for government-issued grants?

26. Paul Baginski - April 6, 2010

@Mike, I saw that detail a few hours after posting and could not find any analogous provision for government-issued grants. I think government-issued grants (which are the majority, I think) are covered by the general fellowship tax code. I found the AAAS articles I linked above to be very helpful (they talk about NIH and other government fellowships), as well as the IRS’s pages explaining how they treat Fulbright grants. In any case, I don’t think this possibility of excluding the full amount exists for governmental grants as it seems to for private non-profits. It seems like that linked exclusion only exists in order to extend the non-taxable status of non-profits to agents they fund in a non-profit way.

27. Paul Baginski - April 10, 2010

A friend of mine who works for the government just sent me a link. Apparently there is a National Postdoctoral Association and they have a fairly comprehensive page on tax advice for postdocs.

http://www.nationalpostdoc.org/component/content/article/69-postdocs/187-overview-of-tax-issues-for-postdocs

I think some people may benefit from other advice this association may have and it’s good to know it exists.

28. John N. - August 21, 2010

Great post… arrived here with google hit on the topic. Thanks for helpful follow-up comments/links from others.

Being a recent NSF postdoc fellowship recipient (paydirect), and one who does the family taxes online, these questions came to mind. Looks like paying quarterly to IRS is a smart idea?

29. Paul Baginski - August 21, 2010

Yes, paying quarterly is a good idea. This is a good idea whenever you’re receiving larger sums regularly and aren’t having much/any of your income being taken out in tax payments with your paycheck.

However, the first half year you have the postdoc, you may not rack up enough income to incur much in terms of penalties, so if you haven’t been doing quarterly payments already, it may not be a big enough deal for you to retroactively pay quarterly (it depends on your situation). However, for the first full tax year you have the postdoc, this is definitely something you should be doing, otherwise you’ll rack up a lot in interest penalties.

30. Ben Webster - August 21, 2010

Though, if you are getting any salary from your school, you can ask them to take extra withholding out of that income, and avoid the quarterly payments. This has worked well for me at times.

31. Jessie - April 11, 2011

Well, this has been enlightening. I have an NSF postdoc fellowship and have been paying my taxes quarterly, but I just got a letter from the IRS saying that I owe an additional $5000… a self employment tax. This is so damn annoying. It’s virtually impossible to get information on how to properly describe the income to the IRS. I’ve bookmarked this page; thanks for all the postings.

32. Paul Baginski - April 12, 2011

@Jessie. I’m not sure if you’re the same Jessie B as above, who had an NSF GK-12 fellowship, whose terms I am not familiar with. If not, and you are on a NSF MSFRP or IRFP fellowship, then in my experience you are not self-employed and should not be paying a self-employment tax (assuming you didn’t file as self-employed on your tax returns). You may want to bring up the Spiegelman vs. Commissioner case in your defense (it’s talked about above).

33. Arwen - October 9, 2011

http://sciencecareers.sciencemag.org/career_development/previous_issues/articles/2100/postdocs_and_the_law_part_3_are_postdocs_employees/

According to this article, a postdoctoral fellowship is not taxable:

IF the recipient is not considered an employee, does not perform services for the host institution, is not obligated for future services under the fellowship, there is no quid-pro-quo, receives the funds for their own research plan (not for the institution’s research plan), and the funds are paid to them (and not to an institution).

An NSF IRFP post-doc would seem to be non-taxable, if recipients do not perform specified work for the host institution in return for the funds, and the money is not paid to the institution but to the postdoc.

I went through a similar situation with a Senior Fulbright fellowship some years back, and the IRS said it was not taxable because the money was paid to me directly, it was for my own research plan, and there was no host institution that required specific work or services to be performed. I paid no taxes or social security on the fellowship.

If you are not teaching in return for the fellowship, and not performing specified work for the institution that’s not your own research that you outlined in your proposal to NSF, and the money is being paid to you directly, then it’s not taxable.

34. Matthew Bond - April 9, 2012

TurboTax does pretty well for me too. After a bit of roaming the NSF pages, it turns out that the NSF just wants you to take it up with the IRS. I don’t even know if I was supposed to get a 1099, either, but I didn’t get one. So I just listed the amount earned for the year as income (listing the expense portion as a deduction) and left it at that.

35. Christopher Taylor - February 11, 2013

NSF GRF (graduate research fellows) seem in the same boat. We dont get W-2s, nor is our fellowship reported on the 1098-T (tuition) form I get at my university (yours might be different, though, because GRF are distributed through universities, not to individuals directly.

For Graduate Students as well performing full-time research and NOT going to class, as PhD candidates who are doing fieldwork do, it appears to me that the procedure as the same as people seem to be concluding on this comments chain for Postdocs. Write “SCH $__” and your amount of scholarship to the left of the “Income” box (Line 7 on 1040). Meaning, it is taxable. The logic seems to be that income for traveling, clerical and assistant payments, room, board, and non-required educational expenses (i.e. materials not required of all students studying in your program) are taxable. That makes up all of my research expenses while doing social science research abroad.

For graduate students, I found this info sheet helpful http://vpf-web.harvard.edu/ofs/tax_services/pdf/fell_hand.pdf as well as http://www.irs.gov/publications/p970/ch01.html (My comments are not tax advice)

36. Catherine Sawyer - March 6, 2013

I just got the NSF-IRFP fellowship a year ago (2012). I’ve been living in the country long enough though (from a previous fellowship) that I can now exclude all my income for 2012 (which is great because NSF just deposited some serious $$$$ that includes the research, travel etc. See tax bulletin: http://www.irs.gov/publications/p54/ch04.html. If you can meet the Physical Presence or Bona Fide Residence Test then you can exclude up to ~$90k from your Federal Taxes. Keep in mind though that you still have to pay state taxes and it’s better to do this quarterly. You can set up your quarterly state taxes easily with TurboTax for example which now fills out all the forms for you and makes a nice payment schedule. If you don’t fit either case you have to treat the fellowship as wages and report the lump sum for tax purposes=-(.

Paul Baginski - March 6, 2013

Catherine, if you qualify for the Bona Fide Residence Test (so that your primary residence is in a foreign country), then you are no longer the resident of any state and do not pay state taxes. Some states, like California, have policies that if you’re gone for a “short” time and then return, then you never “lost” your California residency, but the NSF IRFP is long enough that it’s not a temporary absence.

Not being a resident of a state is thus helpful for state taxes, but It does, however, also mean that the only elections you can participate in are federal ones and that you don’t count in the decennial census.

37. Find Me Landlords Insurance - June 27, 2013

Everyone loves it when individuals come together and share ideas.

Great website, keep it up!

38. http://letd4.free.fr - June 29, 2013

Hi, i think that i saw you visited my site so i came to “return the favor”.
I’m trying to find things to enhance my website!I suppose its ok to use some of your ideas!!


Sorry comments are closed for this entry

Follow

Get every new post delivered to your Inbox.

Join 669 other followers

%d bloggers like this: