Three questions about Cornell’s response if the proposed tax legislation is passed
Date: November 2017
I recently heard that the new republican tax plan involves taxing graduate students on their stipend PLUS their tuition. This would increase our taxes by ~ $6K, a significant amount.
What is Cornell’s plan regarding this development? What will this mean for graduate students moving forward?
Tax-conscious Graduate Student
To whom it may concern,
The new proposed tax plan includes a provision which aims to repeal the tax deduction for qualified tuition and related expenses. If I am interpreting the various published interpretations online correctly, this would significantly disadvantage graduate students and inflate their taxable income relative to take-home-pay.
What can graduate students do (besides calling Congress) to voice their concerns and push for changes to this proposal?
Does Cornell have a plan in case the changes pass which would mitigate the resulting tax burden on graduate students?
Concerned Graduate Student
In the House GOP tax proposal, Sec. 1204(a)(3) states that the bill would strike subsection (d) of section 117 of the current tax code. This subsection is what makes the tuition reduction for graduate students on TA/RA’ships non-taxable income. From what I understand, if this proposal passes, it would mean that the tuition waiver we receive from Cornell would be considered taxable income. I calculated that this could amount to a roughly 75% increase in our federal income tax burden, cutting our effective income by almost 10%.
Have you looked into this part of the tax proposal? I know that there has been a lot of debate so far about the proposed excise tax on endowments (the recent NYT piece on the issue even quoted President Pollack), but I haven’t seen any debate about this portion yet, even though it would significantly impact our finances as graduate students. I’m wondering if I’m reading this portion of the bill correctly, and if Cornell has thought about how they could alleviate the impact on students if it were to pass?
Here are a few articles that have mentioned this aspect of the bill:
GOP Tax Overhaul Would Eliminate Tax Breaks Used by Colleges and Students (Inside Higher Ed)
“The proposal would also eliminate a provision of the tax code used by many universities to waive the cost of tuition for graduate students filling positions like teaching assistantships. If the proposal were to go through, those institutions wouldn’t be able to waive tuition costs without imposing new taxable income on grad students, said Steven Bloom, director of government relations at the American Council on Education.”
Republican Tax Proposal Gets Failing Grade from Higher-Ed Groups (Chronicle of Higher Education)
“The plan would also tax the tuition waivers that many graduate students receive when they work as teaching assistants or researchers.”
Here is the proposed bill, and a the portion of the tax code that I’m referencing.
Thanks so much,
Tax Proposal Questioner
The following response is the same for the three tax questions above.
Dear Tax Proposal Questioner:
Thanks very much for your question. I understand your concern and curiosity about the implications of the evolving tax reform discussions in Congress and among the higher education community. Cornell’s government affairs office in Washington, D.C., with other campus units including the Graduate School, are very much focused on this issue and will continue our efforts to gain clarity on the impacts of the tax reform proposals as they unfold, and to actively engage our federal policy makers so they understand our concerns.
The topic of your question was addressed in Monday evening’s (11/6/17) Graduate Announcements, as below.
Thanks again for posing a question to Ask a Dean. We’ll continue to share updates as we have them.
Barbara A. Knuth, Senior Vice Provost and Dean of the Graduate School
Update on Proposed U.S. Tax Plan Reforms Relevant to Graduate Students
The U.S. House of Representatives tax proposal in H.R. 1 includes several provisions of concern to Cornell regarding the potential negative impacts on the university’s mission of teaching, research, and service. These include proposed changes that would tax university endowments, implications for deductions associated with students loans and other current tax credits for taxpayers related to education, and treatment of tuition benefits under the tax code.
Cornell’s leadership, trustees, alumni, and government affairs team are fully engaged on this issue, working closely with other higher education peers and organizations such as the Council of Graduate Schools, the Association of American Universities, and the National Association of College and University Business Officers not only to understand more completely the potential implications of the proposed changes to the U.S. tax code, but also to lobby members of Congress to revise the tax proposal before it is voted on in the House of Representatives, or a similar bill is introduced in the U.S. Senate, to modify these provisions of concern.
While the prospects for passage of any tax proposal, let alone the version revealed last week in the House, are far from certain, Cornell is not taking anything for granted. We are engaging in a significant way. We understand that one provision of H.R. 1 in particular, detailed below, may cause consternation among graduate students whose assistantship and/or fellowship funding from the university includes stipend, student health plan, and full university graduate tuition scholarship.
One of the sections of H.R. 1 proposes to repeal subsection 117(d) of the current tax code. Some observers have interpreted repeal of subsection 117(d), if signed into law, as changing the current non-taxable status of tuition scholarships for funded graduate students to instead be considered taxable income. Other universities, particularly public universities, may be required by state law to treat certain graduate students as employees under state law, and therefore may be reliant on 117(d) for favorable tax treatment for their graduate students.
Cornell University does not rely on 117(d) for favorable tuition-related tax treatment of funded graduate students, who are considered students, not employees, at Cornell. Because Cornell pays graduate students reasonable compensation for teaching, research, or other services they provide to the university, Cornell graduate students receiving a tuition scholarship are receiving a qualified scholarship as described under sections 117(a), 117(b), and 117(c) of the current tax code, provisions which are not proposed for repeal in H.R. 1. Thus, the proposed repeal of section 117(d), if passed into law, will not have an impact on how Cornell graduate students’ tuition scholarships are handled.
While the stipend for graduate students may be taxable under the current tax code, the tuition scholarship is not, and would not be affected by repeal of 117(d). As H.R. 1 is written, Cornell graduate tuition scholarships will continue to be treated as qualifying (tax free) scholarships under 117 (a), thus, there would be no change from current tax law that treats these tuition scholarships for students as tax free.
Along with Cornell’s government affairs team and University Counsel, we are continuing to monitor the tax reform discussions in Congress and to work with our partner organizations on expressing concerns about proposed provisions that may negatively affect Cornell’s mission and our students, staff, and faculty. We will continue to update graduate students through Graduate Announcements as pertinent information becomes available.