Copied from another Berkeley graduate student wiki on March 29, 2008. Some information, such as the cost of SHIP health insurance is a bit out of date.
This is not tax advice, because it wasn't written by a tax adviser. It's just collected lore. Proceed at your own risk.
The IRS has lots of information for what income is taxable. You should start there.
ASUC provides a tax clinic through the Student Legal Clinic for members of the Berkeley community. International students may want to check out tax workshops offered by Services for International Students and Scholars. There is also software designed especially for international scholars.
If you're on a fellowship, watch out for taxes! Unlike payroll, fellowships have no withholding. This means that the money stays untaxed until April 15, when you suddenly have to pay up. If your bill is over $1000 (and it probably will be) for 2 consecutive years, you'll have to pay a penalty. Now, if that money has been sitting in an ING account it's no big deal, because the penalty will be about the size of the interest you made on it, but it is a hassle. To avoid this hassle go to Patrice and get a W-4 form which will increase your withholding on your teaching money. Increase the monthly withholding so that you'll owe no taxes in April. If you aim too high, you'll get a refund.
If, for whatever reason, you don't get any payroll funds, you can't increase your withholding because there's nothing to withhold, so you'll have to file taxes quarterly to avoid the penalty. Here's how:
- Federal: . You have to sign up then get something in the mail the first time you use it (this can take a few weeks).
- CA: . You just need your CSN, which you can get immediately online if you have a copy of last year's CA taxes. (This is linked from the CA Franchise Tax Board's main site.)
What income do you report?
The most common confusing part about our situation is how much we need to report to the IRS. Regardless of whether you're on a fellowship, you need to report money reported on a "1098-T" form, which you can get at 1098t.com. The on-line version has more information and breakdowns than the paper version you get in the mail.
Part 1 of the 1098-T form lists qualified expenses. These are the amounts of your fellowship or grant money that has gone toward expenses which qualify as tax-free. The idea is that money you got to pay for tuition and campus fees isn't taxable because the government wants to encourage education. Subtract the boxed amount in part 1 from the boxed amount in part 2 (which represents all of the fellowship and grant money you got), and you have the taxable portion of your fellowship money.
You must report this money as part of your "Wages, salaries, tips, etc." on your 1040 form. You need to let the IRS where this money came from, so if, for instance, your non W-2 component is $20,000, write "SCH $20,000" on the dotted line before the box on line 7 of Form 1040(A) (line 1 of Form 1040EZ) so the IRS knows it's from "SCHolarships". This income is generally the amount of your class pass and health insurance (UC maintains a list of fees for this academic year and past years.), plus any fellowship checks you received.
If this number isn't about $600 or $700 per semester (check it against the fee schedule above) plus any UC fellowship money your received (that is, checks from UC not on your W-2), it's probably because the university messed up your form, which seems to happen a lot. In that case, you can either add up what you've received yourself, or use the web version of the 1098-T to try and spot the mistake.
Naturally, you also have to report any money reported to you on W-2s (from teaching, for instance), 1099-INTs (from your savings account), 1099-DIVs (from your mutual funds), 1099-Rs (from taxable events in your retirement accounts) and so on. If you have money in a retirement account, the interest and dividends are accumulating tax-free or tax-deferred, so you won't get forms for that unless you performed a conversion or took money out early. If you've made any contributions to a traditional IRA you can deduct them from your income, but any contributions to a Roth IRA don't even need to be mentioned on your tax form, since you're going to pay tax on that income normally. Any pre-tax contributions from your paycheck, like DCP or a 401(k), will be handled for you on your W-2, so you don't need to worry about them, either.
If you have any questions about the taxation of money in or moving around retirement funds, try IRS publication 590 (available on the IRS website.)
Hope or Lifetime Learning Education Tax Credit
We usually don't qualify for either of these, because these qualified expenses are paid through fellowships, scholarships, or grants, and not out of our pockets. Here is what the IRS has to say about it.