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Are we taxed on our health insurance?

Date: February 2019

Question

Hello Deans,

I am preparing my 2018 taxes received my 1098-T. It appears I owe taxes on the money Cornell pays for my health insurance.

The amount recorded as “qualified tuition and related expenses” is $29,584.00, the sum of my Spring and Fall tuition and student activity fee payments. The amount recorded as “scholarships or grants” is $32,332.00, the sum of my Spring and Fall tuition and health insurance credit. My tax preparer has indicated I will be taxed on the difference, entirely due to the health insurance credit. This raises my tax burden by roughly $400.

Can you clarify: are we taxed on our health insurance?

Sincerely,

Frustrated Tax Filer


Response

Dear Frustrated Tax Filer,

Thanks for submitting an “Ask a Dean” question. Your inquiry is one that that pops up during tax season as students receive their 1098-T forms, so it’s a good opportunity to respond and also highlight some of the resources that are available online, both on Cornell’s website and from the IRS directly. Cornell’s Tax Office confirms that the IRS regulations on this topic haven’t changed recently so the response I offered to a similar “Ask a Dean” question in 2017 is still applicable. Credits for student health plan coverage are considered to be taxable income by most tax advisors. 

Box 5 on your 1098-T displays the total of all credits for tuition, fellowship stipends, and the student health plan. Tuition payments are generally tax-free when applied specifically to the cost of tuition, required fees, books, and some required course supplies or equipment. Health insurance is not typically considered to be a “required fee” because at Cornell, like at most universities, students must have insurance but not all students are required to buy the policy if they have another acceptable plan. Perhaps you’ve seen online discussions suggesting that experts and even the IRS’ own advisors don’t always agree on this. If you are working with a tax advisor you can refer her or him to University policy 1.3 on graduate assistantships. It describes how Cornell assistantships both require and provide coverage via the Student Health Plan, as a condition of the appointment, but not specifically as a condition of being a PhD student.

I’ll also note out that IRS regulations differentiate between full-time enrolled students who are enrolled in student insurance plans and non-student employees who are enrolled in employee insurance plans. There are some significant tax benefits that are available to full-time students that do not apply to non-student employees. Specifically, students are not subject to FICA withholdings under IRS regulations. That provision of tax law is estimated to save a funded Cornell graduate on assistantship in excess of $2000/year (7.65% of gross pay). If you have any questions about your Cornell tax documents don’t hesitate to contact tax@cornell.edu, and look for upcoming tax information sessions on February 21st, and March 7th, 11, and 20th.

Sincerely,

Jason

Jason Kahabka
Associate Dean for Administration