During the past few days I have received a great deal of email regarding potential impacts of federal tax reform on graduate student support. I have spent a few days investigating this, and I have sent along the following perspective to several faculty members. I hope that my research will help provide feedback to graduate students who may be worried about what they are reading in the newspapers.
The federal tax reform package is intended to be a package, meaning that if you try to isolate the effects of one particular item, you may come to incorrect conclusions. Consequently, many of the news articles regarding federal taxation of graduate tuition waivers are misleading. They do not include the effect of the proposed extra $6,000 in standard deduction the students would get, and the overall changes (reductions) in tax brackets.
It is important to look at this as a complete package in any analysis, rather than along individual lines of self-interest, as the package provides the bottom line to the taxpayer. If we do not have the whole tax policy details, it is difficult to get a solid understanding regarding whether there will be a net tax impact on graduate students or not. That is part of the frustration of many of us while we carefully watch this policy evolve. Also, this is a changing policy scenario, and the Senate version of the tax overhaul will likely be substantially different than the House version.
In looking at what the proposed reform says specifically about graduate students, it is important to remember all University of Utah graduate students on Tuition Benefit Plans are charged in-state tuition, even if they are not residents. Many people are incorrectly assuming the students will get an out-of-state tuition wavier. These assumptions can artificially inflate the numbers and communicate a rather dire scenario if the tax reform package is approved.
When I calculated it for myself, under the proposed reform package a student in the sciences would see an increase of about $150 -200 in taxes a year if he or she is taking 12 credits a semester. If the student is taking 9 credits a semester (the minimum under current Tuition Benefit rules), they will see a tax increase of about $30 a year. Basically, the proposed $6,000 in increased deductions offsets the tuition for 9 credit hours of in-state (about $7300/year) and the rest is taxed at about 12%.
A student taking 24 credits a year and on a $17,000 stipend may see a bit more tax increase, roughly about $200-400 a year. The actual number is probably less as I have not included any personal exemptions in the calculation, making the above numbers an upper limit. We can see these are not the alarming amounts being printed in the media.
The projections being shared by many media outlets are applying the old (existing) tax rate to the tuition benefits straight off, which is not part of the current tax reform proposal. Consequently, the articles inflate the potential tax increase with respect to U of U graduate students. The articles may also focus on private institutions, where the proposed tax reform package is not offset to the same degree as in publicly-funded universities like the U.
When reading about the proposed tax reform package, I encourage you to calculate the numbers for yourself and understand how proposed changes may affect your personal tax liability. The proposed tax tables for existing taxes and the proposed tax structure can be easily found on the web.
When responding to government decisions that affect graduate studies and academic research at the U, we must be careful not to overreact. It is always a good idea to contact your representatives in support of graduate education, but without a secure foundation of understanding, academia can lose credibility in this (and future) discussions with congressional representatives. In this case, this is especially true if they present you with the calculation above in response to your concerns.
The Graduate School has written to the Council of Graduate Schools for a clarification of their numbers, as our straightforward calculations do not confirm the scenario they have been describing in their press release (at least for the U of Utah). We will let you and the Directors of Graduate Studies know what we have learned.
I encourage you to think actively about support of graduate education and higher education, and use your right to express your opinions and concerns to our elected representatives regarding this issue, or any issues that may be a concern in pending legislation. Giving well-reasoned, thoughtful input to our congressional representatives can help them enact policies that enhance our national priorities for education, economic development, care of our communities, and long-term prosperity.
The Graduate School Office remains ready to consult with students regarding any fears or concerns they may have regarding this proposed tax reform package. Graduate School representatives are available during the weekly advisement hours, and the office can be reached at email@example.com.
UPDATE: The Graduate School’s breakdown of the House and Senate bills as they relate to graduate student tax payments here at the University of Utah is now live. GradTaxes2017.pdf