Philosophy with Onbester

Tax Proposal Would Make Getting a PhD in the US Very Expensive

The tax plan introduced by Republicans in the U.S. Congress last week would have drastic effects on graduate education in the United States, according to reports at The Chronicle of Higher Education and Inside Higher Ed.

The plan has many parts, but of particular interest to academics may be the clause that would require graduate students to pay taxes on the value of the tuition waivers they receive.

In philosophy, as with many other fields, most PhD students do not pay tuition—rather, it is paid, ultimately, by the university itself (in various ways, depending on scholarships, the budgeting structure, etc.). This amount varies from school to school, from around $14,000 per year at public universities like the University of South Carolina or the University of Colorado, Boulder, to around $48,000 at Georgetown University or Princeton University.

In addition to this benefit, most such students also receive a modest stipend, usually in exchange for being a teaching assistant, instructor, or research assistant. Though there are some exceptions, a PhD student’s take home pay is typically small, with students earning just enough to get by.

Currently, graduate students do not pay taxes on the value of the tuition waiver they receive from their universities. That amount counts as “qualified tuition and related expenses” and as such is not treated as part of their taxable income. According to Title 26Subtitle AChapter 1Subchapter BPart III§ 117 of the U.S. Code: “(a) Gross income does not include any amount received as a qualified scholarship by an individual who is a candidate for a degree” at most universities, and “(b.1) the term ‘qualified scholarship’ means any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.”

My understanding—please correct me if I’m wrong, folks—is that the new proposal removes “qualified scholarships” from the “qualified tuition and related expenses” graduate students were previously not taxed on:

The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsection (c)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as— ‘‘(A) a qualified scholarship which is excludable from gross income under section 117…

That’s from p.84 of the proposal, under “Subtitle C—Simplification and Reform of Education Incentives”, (sec.25A)(f)(2). (My apologies if this isn’t quite right; I’m not used to reading tax bills.)

If that’s correct, then a graduate student who receives a $20,000 stipend for being a teaching assistant, plus a $40,000 tuition waiver, will have to pay taxes on an income of $60,000.

That leaves aside other credits and deductions, but note that even if the graduate student is receiving benefits that count as “qualified tuition and related expenses” under the new proposal, any tax credits for such expenses are “allowed only for first 5 years of postsecondary education,” with significant reductions in the fifth year, which means it will be unavailable for most graduate students for most of their graduate education (see p. 80 — Sec.25A(d)).

Suggestions about what to do in regards to this proposal are most welcome.

(Thanks to a few readers who suggested posting about this, one of whom recommended this Twitter thread from Claus Wilke (UT Austin) and another who added, “I remember that when the GOP took over congress in 1995 they proposed this and backtracked pretty quickly, but I think academics should pay attention this time.”)

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