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Universities Withholding Tax on Tuition Waivers?
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Date: Tue, 28 Oct 1997 11:28:09 -0800
From: NAGPS
10/28/97
Dear NAGPS Members and Friends;
Graduate students from at least two universities have notified NAGPS in the past few days that these universities have begun to withhold additional income taxes from stipends of teaching and/or research assistants under the presumption that the tuition waivers of those TAs/RAs are now considered taxable income. In both cases, the students have indicated that the universities have said that the summer tax legislation is behind this change. NAGPS has not yet investigated the specific examples (our National Conference begins tomorrow and our energies have been focused in this direction). However, these reports greatly concern us.
NAGPS nor its volunteers or staff are attorneys, nor should any information or advice be considered "tax advice" that one would get from an attorney or accountant. But we played a significant role in this summer's tax bill, and continue to work with the IRS, the Treasury and Education Departments, Congress and the White House to ensure that the new regulations are implemented so they benefit students. Our best information would indicate the following:
1. There was no change in Section 117d of the Internal Revenue Code. This section (see Section 117d5) specifically exempts MOST tuition waivers granted to graduate teaching and research assistants at universities and colleges. Efforts to eliminate this tax exemption WERE DEFEATED and the change was never made. 2. There was no change to Section 127 of the Internal Revenue Code with respect to graduate students. Employer Provided Educational Assistance given to graduate/professional students has been considered taxable since July 1, 1996. Changes to Section 127 this summer extended the benefit for undergraduate courses only. However, Section 117d5 was created in 1988 SPECIFICALLY to ensure that one kind of Employer Provided Educational Assistance (tuition waivers/reductions) provided by one category of employer (universities/colleges) for one category of employee (graduate students performing teaching or research duties for those employers) were exempt from being treated as income. We believe that the publicity about the extension of 127 to undergraduate courses only may have prompted some universities to believe that Section 127 had changed for graduate students. Section 127 benefits expired for graduate students on 7/1/96 - more than one year ago. 3. The only changes affecting graduate students were positive ones. The student loan interest deduction was restored (up to $2,500 in student loan interest will be deductible when this is implemented). The Lifetime Learning Tax Credits will be available to graduate students as well as undergraduates (up to 20% of $5,000 in tuition payments will be available for a tax credit until the year 2000 and 20% of $10,000 in tuition payments will be available for a tax credit after that year). There were other changes in the tax code affecting students, but none change the tax status of tuition waivers to our knowledge. 4. Most of the elements of the Tax Reduction Act of 1997 will not be implemented until 1998 or 1999. Changes effective immediately by universities, and blamed on this tax act, should be automatically suspect by students and investigated.
NAGPS is interested in learning more about students who are being taxed on their tuition waivers. It is our opinion that legislation adopted by Congress in 1988, as well as the debate around Section 117d this past summer, CLEARLY implies that Congress intends that tuition waivers for most graduate teaching and research assistants should remain tax-free benefits of their employment by the nation's universities and colleges. Toward the end of the debate, NAGPS was unable to find ONE SINGLE MEMBER OF CONGRESS who would go on record as supporting the eliminate of Section 117d5 for graduate research/teaching assistants. There is simply no legislative justification for any university to begin withholding taxes on tuition waivers (except in rare cases where the tuition waiver is the only compensation to the TA or RA).
We will vigorously defend this position because it is of such great interest to all graduate research and teaching assistants, as well as the universities that employ them, the faculty that supervise them, and the students who receive the instruction. We are confused why any university would take a position not supported by tax law and one that increases their costs and clearly makes their teaching and research assistantships less competitive in the educational marketplace.
If you are a teaching or research assistant and receive both a stipend and a tuition waiver/reduction and your universities is withholding taxes from the stipend based upon the value of the stipend AND the tuition waiver, please contact NAGPS via email as soon as possible. You may also fax NAGPS a copy of your pay stub showing the tax withholding so that we may pursue the issue with the greatest amount of information. Email us at nagps@netcom.com or fax us at (847) 256-8954. (Case Western Reserve University students do not need to contact us - we are already aware of your situation and continue to work with your GSS on that subject).
To learn more about this summer's tax legislation (which, at the end, was extremely favorable to graduate students), please visit our web site at http://www.nagps.org/NAGPS/ and link to our tuition tax web site.
Kevin Boyer NAGPS Executive Director
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| NAGPS 12th National Conference - New Orleans, Louisiana | | October 30 - November 2, 1997 | +-----------------------------------+------------------------------------+ | To access the NAGPS Internet Job Bank, send email to nagps@netcom.com | -----------------------------------+------------------------------------ | #### WWW Site > http://www.nagps.org/NAGPS/ #### |
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