Do graduate students have to pay tax on our health insurance plan?
Date: March 2017
I recently learned that graduate students are now generated a 1098-T. This was not the case in the past, instead we were told we did not receive a 1098-T because “financial aid exceeds tuition charges”. Now that I have a 1098-T, it is unclear what I do with this, namely when it comes to filing taxes.
One thing that confused me with the 1098T is when I subtract box 2 (charges) from box 5 (fellowships), I get a number that is higher than I received as my stipend. After some digging and conversations with the bursar (Tim was quite helpful), I learned what exactly goes into box 2 and box 5 of the 1098-T. One unexpected “fellowship” I saw in box 5 was for health insurance. I have asked other graduate students, and it appears that regardless of how their stipend is being paid (TA, PI, external fellowship, or internal fellowship), health insurance cost is listed in box 5, so I think this concern will be of interest to graduate students across campus.
I will come right out and say that my actual question is: Do we, graduate students, have to pay tax on our health insurance plan? With the health insurance “fellowship” in box 5, it would seem to me that graduate students would be required to pay tax on it, as tax is applicable to the difference between box 2 and box 5. This is with my limited understanding on taxes — I am a scientist in training, not a CPA!
Now, I understand that the university “does not provide tax assistance or advice” (and this is something quite frustrating to me, but may warrant another conversation). I do have some questions that I need answers for that will allow me to be educated as I filed my taxes, to make sure that I do so properly. First and foremost, is the Student Health Plan required? Reading the website, all full-time registered students are enrolled automatically. While some categories are eligible to waive, fully-funded graduate students (me!) are listed as NOT eligible to waive. So by that logic, the SHP is required for fully-funded graduate students? I cannot find documents that clearly state whether this is true or not.
For now, I think that is all — I may have some follow-up questions as I work further along through this fun-filled tax filing process as a graduate student!
Grey-area Graduate Student
Dear Grey-area Graduate Student,
It’s the time of year when many of us are trying to make sense of tax rules, so this is a great question! As you’ve noticed, there was a recent legislative change that requires students to receive a form 1098-T in order to claim certain educational credits. The rules also now require 1098-T reporting for some students who were not previously included, such as those who receive full tuition scholarships or fellowships. I’ll offer some information but, as you’ve discovered, Cornell staff are not legally able to provide tax advice because each student’s circumstances will be different and only a trained, certified tax advisor can provide appropriate individual guidance for you. (I’ll also steer clear of offering medical and car repair advice here, too, just to be safe!)
The bursar has explained that box 2 on the 1098-T form includes the sum of billed, qualified educational expenses. Some students who self-pay these expenses may be able to claim a tax credit such as the American Opportunity Credit, the Hope Credit, or the Lifetime Learning Credit, based on this amount. Student Health Plan costs are not included in box 2.
Students who receive scholarship or fellowship support, as you did, will see the sum of their eligible awards reported in box 5 on the 1098-T. Fellowship and scholarship support is generally tax-free when applied specifically to the cost of tuition, required fees, books, and some required course supplies or equipment. The question you are asking is whether the funding you received to cover your student health insurance is also considered tax-free by the IRS. Health insurance is not typically considered to be a “required fee” because at Cornell, like most universities, students must have insurance but not all students are required to buy the policy if they have another acceptable plan. It would be nice if the IRS was explicit about whether health insurance credits are tax-free, but they don’t seem to be. Their published information is excerpted below:
If you receive a scholarship, a fellowship grant, or other grant, all or part of the amounts you receive may be tax-free. Scholarships, fellowship grants, and other grants are tax-free if you meet the following conditions:
- You’re a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities; and
- The amounts you receive are used to pay for tuition and fees required for enrollment or attendance at the educational institution, or for fees, books, supplies, and equipment required for courses at the educational institution.
Perhaps you’ve seen online discussions suggesting that even experts 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 in the Student Health Plan, as a condition of the appointment, but not specifically as a condition of being a Ph.D. student.
Here is some additional information that you may find helpful:
- Information on the 1098-T form at Cornell University
- A summary of the new 1098-T rules for colleges
- Educational tax credits info from the IRS
- IRS guidance on choosing a tax advisor or preparer
Associate Dean for Administration