Confused About Taxes (in need of major help!)

Paying for College
1

<p>Hello,</p>

<p>I will be a college student in August 2013, and I seem to lack understanding of taxation in America (in my country, we have no taxes).</p>

<p>Please forgive me for my ignorance. I've done research on paying taxes, but it seems that for every concept I understand, I become confused about other topics.</p>

<p>I've been freaking out for a few weeks now, so I sincerely hope some of you will take some time and help me before college starts. </p>

<h2>GENERAL FEDERAL TAX QUESTIONS:</h2>

<p>1) Before paying taxes, must I fill out other paperwork (i.e.: paperwork confirming I'm a resident of the state, etc)?</p>

<p>2) Is the "pay as you go" method the only way I can pay my federal tax? If not, can I pay all my federal taxes together in April 2014?</p>

<p>3) How does the "pay as you go" method work? Do I calculate how much I pay in federal taxes for the year of 2013, then do some calculations bi-weekly to give to the federal government? </p>

<p>4) Is federal income tax, medicare tax (FICA), and social security tax (also on behalf of FICA) the only taxes required for me to pay to the government (without including sales tax of course, state tax etc)? If not, what other taxes are legally required for me to pay?</p>

<p>5) Must I fill out forms for sales tax to the federal government every year, or do I pay sales tax only to the retailer every single time I purchase an item, thus having no need to fill a form?</p>

<p>6) Which income tax form is easiest for a college student to use?</p>

<h2>W-2 FORM QUESTIONS</h2>

<p>7) Does the university fill out the w-2 form, or is that my job?</p>

<p>8) What exactly is the point of the w-2 form? How will it help me pay taxes?</p>

<h2>FULL RIDE SCHOLARSHIP QUESTIONS</h2>

<p>Background info: I received a full ride scholarship paid by a third party source (not the college). I will be receiving a monthly living allowance, and tuition + dorm expenses + book expenses etc all paid.</p>

<p>9) When I fill out my tax form, I heard I have to pay tax on "room and board" portion and a few other parts. Are these parts considered a taxable wage/salary? If it is taxable, do I calculate it by adding the expenses and reporting the sum as my income for it to be taxed? </p>

<p>10) Will my monthly living allowance (stipend) also be taxed as a wage?</p>

<p>Again, I sincerely apologize for this long post. But it would be appreciated if you guys can take some time and answer my questions.</p>

2

<p>1) No. This will be accomplished by filing a State return at the same time you file the Federal.
2)It is not. However, it is the method the IRS demands. If you are being paid wages, the employer will withhold taxes. If it’s taxes owed on your scholarships, you must pay in during the year using estimates.
3) Again, if it’s on wages, the employer will withhold. If it’s on your scholarship, you should figure out what the total will be that you owe for the year and pay it in quarterly. I would suggest using an accountant until you can do this yourself.
4) Federal tax will be owed on everything you earn, including taxable scholarships and living stipend. Social Security and medicare tax is only paid on earned income. You must also pay taxes to the State in which you are living and/or working.
5) Sales tax is paid upon purchase. Nothing else for you to do.
6) Depends on what your income consists of. I’m going to guess that you will be required to use a 1040. But others could be possible.
7) The Employer give you a W-2. That could be the University if they consider what they give you to be wages. It could also be a 1099.
8) The W-2 tells the IRS how much you earned in the year and how much was withheld. You then use it to file an income tax return. If not enough was withheld, you would pay in then. If too much was withheld, you would get a refund.
9)Yes. You pay tax on your room and board and living stipend. What they give you is what you pay tax on, not what you actually spend.
10) It will be taxed, but not necessarily as a “wage”. It could be unearned income. Ie., “taxable scholarship”.</p>

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<p>OP, Are you an international student?</p>

4

<p>3bm103, thanks for your thorough response. </p>

<p>I need some clarification on a few issues though. </p>

<p>1) I technically won’t be employed. The living stipend provided by the scholarship will be given to me without having to do any work (yes, I’m lucky), so how will that affect the w-2 form, employer withholding (since I don’t really have an employer) and my federal tax? </p>

<p>2) Since I don’t have to do any work for it, is the stipend considered “unearned income?” Will I be using different forms as a result of this unearned income? Does that mean I won’t pay social security and medicare tax (since both taxes rely on earned income)?</p>

<p>3) Will the room & board tax also be considered unearned income?</p>

5

<p>Op,
Thanks for ignoring my question. You’re learning quick.
From your old posts, I see that you’re an international student. You should ask your school’s international student services concerning the taxation of your scholarships & living stipend.
For your enjoyment, see ‘US Tax Guide for Aliens’ by IRS <a href=“http://www.irs.gov/pub/irs-pdf/p519.pdf[/url]”>www.irs.gov/pub/irs-pdf/p519.pdf</a></p>

<p>P.S. The responses from 3bm103 may not apply to you.</p>

6

<p>I’m actually a dual citizen. Born and lived in America for a couple of years.</p>

<p>I didn’t mean to ignore your question. But learning the tax process is more important to me than answering questions about where I lived/where I’m from.</p>

<p>So yeah, 3bm103’s responses do apply to me due to the fact that I’m a citizen.</p>

<p>I still need clarification on a few things as I stated above (post #4).</p>

<p>Thanks for your concern though. :)</p>

7

<p>

Actually, US taxation begins with where you lived and your citizenship (where you form).
Also, do you know that US tax you on your worldwide incomes?
Now,

That could be tax-free if you’re not perform any works for this third party source.</p>

<p>If you want to learn the US taxation, you should contact a tax expert for your tax questions or see Pub 17 from IRS <a href=“http://www.irs.gov/pub/irs-pdf/p17.pdf[/url]”>www.irs.gov/pub/irs-pdf/p17.pdf</a>. I think this forum should only discussing general tax information related to financial aid & scholarships.</p>

<p>P.S. My disclaimer: I do not advise on any personal income tax requirements or issues. Use of any information from my posts on this forum or any other web site referred to is for general information only and does not represent personal tax advice either express or implied. You are encouraged to seek professional tax advice for personal income tax questions and assistance.</p>

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<p>To be fair, I do believe my post is discussing general tax information (ie: I’m asking if I have to pay social security tax, medicare etc → seems general to me).</p>

<p>The reason I chose this forum to ask my questions is because I know there is a large contingent of motivated students and their parents posting here who have substantial knowledge on the tax code.</p>

<p>Any and all answers provided by members here regarding my questions are welcome. I really need to get a bit more info about taxes before going out to face the real world.</p>

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<p>

What is you real world? Study at school? Work?</p>

<p>

Here’s general answer: IT DEPENDS!</p>

<p>0)In general, FICA taxes are withhold from the incomes from work.
However,
1)If US citizens/Resident Alien work in US, employer will withhold FICA taxes from the earning. Outside of US, general no FICA taxes.
2)If international students (F1 or J1 visa) work on campus or off campus (with permission), no FICA taxes will be withheld.
3)If full-time students of US citizens/Resident Alien work on campus, no FICA taxes withheld. However, if you work while you’re not attending any classes, FICA taxes will be withheld.
There are many more special cases / exceptions.</p>

<p>So, when you ask do you have to pay FICA taxes; generally yes, however, depending the type of incomes, your immigration status, who’s your employer, & where you work, you may not have to pay.</p>

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<p>The real world, in my opinion, starts during college. Learning to make it on my own and living with the consequences of my decisions seem to be the start of the real world and adulthood. Kinda excited, but cautious!</p>

<p>According to the following website: [Publication</a> 970 (2012), Tax Benefits for Education](<a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service) </p>

<p>“If you file Form 1040, include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7.”</p>

<p>If I read the statement above correctly, does it mean that my living stipend and certain parts of my scholarship (room & board) shall be taxed, even though I have no w-2 form (I won’t be having a w-2 form because I don’t have an employer)?</p>

<p>The whole thing with the employer is confusing me…</p>

<p>How will I use the “pay as you go” method for federal tax if I don’t have an employer reporting the w-2 form? What’s the solution to this?</p>

<p>Again, thanks for your help. I’m learning more and more after every post.</p>

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<p>

That why the Pub 970 tells you to

So that IRS won’t look for the W-2 for that amount.</p>

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<p>A couple questions first. Is this 3rd party source a US source? Is it something like Questbridge? Is it a private individual? If you give us the name of the source if an organization, someone here may have had experience with that source. Also, can you be claimed as a dependent on a parent’s or other person’s US tax return? Can you estimate the amount that you will receive in 2013 that will exceed tuition, mandatory fees and required books and supplies that will be paid in 2013 and give us that estimated number?</p>

<p>You will need to keep reliable records of amounts received and paid for qualified education expenses(QEE). You should receive a form 1098T from the college next January that will show amounts paid directly to the college for QEE. It won’t include books and supplies most likely. Keep receipts for those purchases. The 1098T is a guide to QEE paid but is not always accurate, hence the need to keep reliable records(copies of bills, checks written, a printed online or paper statement of amounts applied to your bills and for what. You will use those records and the 1098T to figure the taxable amount when filing your taxes next spring.</p>

<p>IRS Pub 501 starting on page 2 explains tax filing requirements:</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p501.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p501.pdf&lt;/a&gt;&lt;/p&gt;

<p>If you can be claimed as a dependent on someone elses US return, the first $6k or so of your taxable income, including the taxable part of your scholarship, won’t be taxed. If no one can claim you as a dependent, the first $9.75k won’t be taxed. For federal income tax, taxable scholarships and grants are considered earned income. For state, that may be different. </p>

<p>There are two ways to ‘pay as you go’ during the year. For income reported by an employer on a W-2, tax is withheld from each pay check during the year. For other types of income, quarterly payments are sent to the IRS. This link explains estimated payments:</p>

<p>[Six</a> Tips on Making Estimated Tax Payments](<a href=“http://www.irs.gov/uac/Newsroom/Six-Tips-on-Making-Estimated-Tax-Payments]Six”>Six Tips on Making Estimated Tax Payments | Internal Revenue Service)</p>

<p>This link explains the penalties for not having enough withheld during the year or not making enough in estimated payments:</p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/i2210.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/i2210.pdf&lt;/a&gt;&lt;/p&gt;

<p>Note the exceptions starting on page 1.</p>

<p>This link discusses stipends and whether or not the stipend is for services performed, such as research or teaching.</p>

<p>[FinAid</a> | Scholarships | Taxability of Scholarships](<a href=“Your Guide for College Financial Aid - Finaid”>Taxability of Scholarships - Finaid)</p>

<p>Disclaimer: All of the above is for a US citizen who lives and has lived in the US. I don’t know if there are any differences or gotchas for a citizen who lived out of the country for an extended period prior to coming to the US for college. </p>

<p>Are your parents citizens? There are requirement for US citizens living overseas concerning reporting income to the IRS but I am not familiar with that or if it would affect you.</p>

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<p>Edited post.</p>

<p>I’ll ask new questions tomorrow (I need to go to sleep).</p>

<p>@Annoyingdad (nice name), I’ll answer your questions and respond accordingly tomorrow. Thanks for the time and effort you put into the post.</p>

<p>It is VERY appreciated.</p>

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<p>@Annoyingdad</p>

<p>*The scholarship is not a US source
*For the sake of staying anonymous, I won’t disclose the source of the scholarship (although I really don’t think any person here ever heard of it)
*My parents are both NOT citizens of the USA, and thus file no tax returns
*I will not be claimed as a dependent by any person (because of the above mentioned statement)
*The estimated taxable amount on my scholarship will be $12K per year without the living stipend (Maybe $16-$20K with the stipend per year).</p>

<p>Now, I have a few more questions if you don’t mind.</p>

<p>1) When I purchase a book required for my classes, the money used for the purchase will not be taxed. Correct? And the receipts from such purchases will help me figure this out?</p>

<p>2) I won’t be having an employer providing a w-2 form, so I have to make the quarterly estimate tax payments to the IRS. Do I calculate these estimates by including standard deduction ($6.1K) and the first $9.75K that are not taxable? </p>

<p>…So I won’t be paying tax on the first $15.85K? (That’d be awesome)</p>

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<p>Will this organization be sending the funds(perhaps all but the stipend) directly to the school? Has someone told you these funds will be taxable in the US, perhaps the organization? I would think you are probably right that they are but I don’t have the knowledge to confirm that. Perhaps someone else here can.</p>

<p>So assuming the funds are taxable here are the answers to your questions.</p>

<p>1) If you buy required books and supplies at an actual store you will pay sales tax on the purchase. If you buy them on the internet you may or may not pay sales tax depending on if the internet organization has a physical presence in the state in which you are residing. That’s the only tax paid on the amounts of these purchases.</p>

<p>You need to keep receipts/records of these purchases. The amount of your scholarship/stipend that will be taxable is the total funds distributed - amount paid for tuition - amount paid for mandatory fees - amount paid for required books and supplies.</p>

<p>So yes, the amount of the funds spent on required books and supplies will not be subject to income tax.</p>

<p>2) The $9.75k I mentioned is for tax year 2012. It represents the standard deduction of $5950 + the personal exemption of $3800. The amount of those two items for 2013 has probably been published but I don’t know what they are. Is that where you got the standard deduction of $6.1k? So the standard deduction was already included in the $9.75k.</p>

<p>US income tax is paid by the tax/calendar year, not the school year. Were those estimates you gave for a full school year? If so, normally for your first semester, half those amounts would be distributed and paid in 2013 and subject to 2013 income tax. However, sometimes scholarship amounts are distributed and/or school costs are paid in December for 2nd semester. That complicates things as to for which tax year you would report those amounts, 2013 or 2014.</p>

<p>Reread my previously posted link concerning exceptions to having to pay a penalty for under withholding/under paying estimated amounts. It would seem you would qualify for the exception for 2013 in that you didn’t have a US tax liability/weren’t required to file a US return for tax year 2012.</p>

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<p>Everything regarding the tax code is becoming more understandable as you continue to post. :)</p>

<p>For the FICA (social security and medicare) tax, $9.75K deduction does not apply when doing my tax, right? It only applies to the federal income tax if I’m not mistaken.</p>

<p>Also, according to the estimated amounts payment, I have to file on April 15, June 17, and September 16 in 2013 and January 15 of 2014. Since I will only start my college career in August, I have no need to worry about the first 2 dates. Or am I wrong?</p>

<p>Do you think I should contact the bursar’s office at the university and or my scholarship source to ask about how the funds are distributed, so as not to confuse the amount paid in the tax year, before September 16?</p>

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<p>FICA and medicare taxes are withheld from employees pay checks each pay period and self-employed people have to pay it with their tax returns. Taxable scholarships are neither and you don’t have to worry about FICA and medicare tax on the taxable scholarship portion of your income.</p>

<p>You didn’t answer my question about if anyone told you your educational support would be taxable. I did some googling and found IRS Pub 901. It concerns tax treaties the US has with other countries. Starting on page 19, country by country, it discusses whether educational support received by residents of the various countries is taxable in the US. If you’re not residing in one of those countries then it appears all your support will be taxable. However, on page 2 it says:</p>

<p>

</p>

<p>So it looks like your US citizenship may make everything taxable except I didn’t find what the ‘certain exceptions’ are. Maybe the exceptions are for certain countries but I didn’t read about all the countries. If your country is listed you should read the details concerning the tax treaty. </p>

<p><a href=“http://www.irs.gov/pub/irs-pdf/p901.pdf[/url]”>http://www.irs.gov/pub/irs-pdf/p901.pdf&lt;/a&gt;&lt;/p&gt;

<p>You also didn’t answer whether the organization will be sending funds directly to the university. It would be helpful to contact them and find when they would send funds for 2nd semester. It would also be helpful to know when the university bills for 2nd semester. So yes, I would contact both, explaining your situation in detail.</p>

<p>If it were me, I wouldn’t worry about sending estimates for tax year 2013. Provided you had no US tax liability and didn’t file a US tax return for 2012, you should not owe any penalties for tax year 2013 for under withholding/not sending in estimated payments. 2014 will be different.</p>

<p>Also, concerning state income tax. There are a few states that don’t have an income tax. For those that do, they generally following IRS rules but each also has a number of differences. Go to the Department of Revenue website for the state your school is in. Your situation is somewhat rare so you may not find info on your situation and probably should contact them.</p>

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<p>I was a bit in a rush today morning, so I only had time to answer questions I knew the answer of. Sorry.</p>

<p>No one has told me whether the organization will be sending the funds to the university by paying for each semester individually or by paying for the full year at once. And yes, I’ll definitely be contacting the organization and the university soon to find the answer.</p>

<p>For the FICA part of your post, I understood (correct me if I’m wrong) that I won’t have to worry about paying FICA/medicare tax because I’m not self employed and do not have an employer. Is that about right? But what about the living stipend? Even though it is part of the taxable scholarship (which is not FICA taxed), is it an income that should be taxed by FICA because it could fall under the category of “salary”? Or is the stipend also exempt since it is associated with the scholarship?</p>

<p>The reason I’m obsessing about FICA and other tiny details is so I can have a better understanding for paying taxes in the future.</p>

<p>Unfortunately, my country is not located in the tax treaty website. So I guess I’ll have to pay like every other US citizen receiving a scholarship.</p>

<p>Lastly, I’ve done research about the state I’ll be residing in (Pennsylvania). The online website of Department of Revenue states that 3 methods exist for paying state tax—> 1) estimated and final payments, 2) employer withholding, and 3)estimated withholding from nonresident partners or shareholders by partnerships and S corporations. Luckily, nothing is too complicated regarding Pennsylvania’s tax code. Just a simple flat tax with no standard/personal deductions.</p>

<p>Again, thanks for your time. I don’t fear taxes as much as I did thanks to you and this thread.</p>

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<p>

I could be wrong, but you don’t live in US, you just come here for studying, aren’t you?</p>

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<p>I do not currently live in the USA, but will be next month. And yes, I will be studying at a university in the state of Pennsylvania. My long term goal is to find a job in finance (might change my goal though, depending on my academic performance).</p>