<p>My son worked last summer at a lab at a state school. He was paid monthly with a check, but nothing was withheld, no taxes, no SSI, no nothing. He earned enough to have to file taxes, but the lab hasn’t given him a W2 or anything other than his pay checks. He has asked the secretary (who keeps track of hours worked and turns his timesheet in to the state so he can be paid), but she said they don’t give W2’s to summer help. I’m almost positive that all of the money used to pay the summer students comes from government grants if that makes a difference.</p>
<p>How is he going to file his taxes without a W2? We need help quickly please.</p>
<p>He doens’t really need a W-2 if nothing was withheld. The IRS is always happy to hear about income not reported on W-2’s. </p>
<p>The problem with not having a W-2 comes if taxes were withheld and there’s no way to prove it without a W-2. But that’s not the case here.</p>
<p>I think I would just report the wages on line 7 of a 1040 and put a note that the amount is “wages from a taxable research assistantship stipend” and the IRS will know what to do with it.</p>
<p>Social Security taxes would not be due on that kind of income. </p>
<p>A dependent student can earn up to $5,000 in “earned income” (including this research stipend and any other wages he had) before any of it will be taxable.</p>
<p>The standard deduction for a dependent student’s unearned income (e.g., interest and dividends) is more limited–it takes a lot less before those become taxable.</p>
<p>How much other income does he have and what is its source? (i.e., wages from term time job, investment income, etc.?)</p>
<p>Thanks so much! Unfortunately he earned $5,123 at this research job. He should have quit work two days early I guess. His only other income is about $2 interest on a small savings account. He’s working a part-time job now at school, but didn’t start until January 2006.</p>
<p>My husband said son is going to owe $700+ in self-employment tax or something (H is asleep and I’m not sure what it was for). Does that sound right? I really appreciate the information. My husband was kind of freaking out.</p>
<p>No, he doesn’t owe self-employment tax. (To clarify, self-employment tax is Social Security and Medicare taxes that self-employed people pay on their self-employment income–since obviously they don’t have an employer to do it for them.)</p>
<p>But your son isn’t self-employed. </p>
<p>The reason no Social Security and Medicare taxes were withheld on his research stipend is that such income is not subject to those taxes in the first place. Neither is teaching assistant income. Both of these are essentially “taxable scholarship” income and, as such, they need to be reported on line 7 of a 1040 (with a notation as to their source.)</p>
<p>He’s in the 10% bracket, and from what you’ve told me above, his taxable income = (5,123 + 2) - 5,000 = $125, so his total taxes will come out to somewhere around $15 or so (since the tables round things off)</p>
<p>Things that could change this calculation:</p>
<p>1) If it turns out that nobody else can claim him as a dependent because he’s providing more than 50% of his own support (unlikely but possible), he would get a personal exemption of $3,200 in addition to a standard deduction of $5,000 and he would owe no tax at all.</p>
<p>2) If he’s also getting scholarship money over and above tuition, required books and fees, then he would also have to report the taxable scholarship income (e.g., for money applied to room, board, travel, etc.)</p>
<p>I highly recommend that all students and parents concerned about tax issues like this spend some time reading the relevant portions of IRS Publication 970, which you can read on-line at irs.gov.</p>
<p>Here is the revelant excerpt from Publication 970.</p>
<p>Essentially, the research stipend is a taxable fellowship. Note that they specifically mention what to do if there is no W-2.</p>
<p>
</p>
<p>As to the last paragraph, you can look up the definition of Independent Contractor in Publication 15-A, but I think it’s extremely unlikely that an undergraduate research (or even a graduate) assistant would qualify for Independent Contractor status.</p>
<p>(Independent Contractors are typically just what that says–“independent,” with lots of flexibility about how to do the job and just the final output defined. They work without a lot of supervision. The whole point of research assistantships is that students get supervision and mentorship from their supervisor, so there’s a very strong presumption that students on research stipends are NOT independent contractors and thus are not subject to self-employment taxes.)</p>
<p>The basic rule of thumb: if you report the income on line 7 on the 1040 (or its equivalent on the 1040EZ or 1040A forms mentioned above), it is considered wage income and therefore NOT subject to self-employment tax!</p>
<p>(Self-employment income, by contrast, would be reported on Schedule C or C-EZ and then that would flow to a line somewhere below line 7.)</p>
<p>So report it on line 7 of 1040 with annotation indicated above and the IRS will know exactly what to do with it–and there will be no self-employment taxes owed on it, just straight federal income taxes, which in his case will be 10% of any amount in excess of $5,000.</p>
<p>“My son worked last summer at a lab at a state school.”</p>
<p>“No, he doesn’t owe self-employment tax.”</p>
<p>With all due respect to Wisteria, if the job is not part of a work study program, I do not see how you could avoid paying SE taxes. </p>
<p>Working for a lab that has received a grant does not make you the recipient of a fellowship. The lab took a shortcut in their categorization of summer help as independent contractors. Colleges and universities have been sued by the IRS for such practices and some schools are facing multi-million fines, penalties, and back taxes for failing to withhold and pay the correct amount of Social Security and unemployment taxes. This is a big issue among graduate and doctoral studenst who are asked to teach or perform ancillary services. </p>
<p>This is the guiding element:</p>
<p>Payment for Services</p>
<p>All payments you receive for past, present, or future services must be included in income. This is true even if the services are a condition of receiving the grant or are required of all candidates for the degree.</p>
<p>D received a W-2 for her earnings at a privated MA university. State and federal taxes were withheld, but no SS. I’m pretty sure they have classified almost all of their jobs as work study. She is a student there. Does it matter if he was a student at that school?</p>
<p>I agree that there are tricky issues and technicalities involved in how research assistantship stipends are characterized but the issue of FICA (Social Security & Medicare taxes) is between the IRS and the employer.</p>
<p>With all due respect to xiggi, if the university made a mistake in characterizing this income as exempt from FICA (the Social Security and Medicare taxes), the university is the one that is liable for BOTH the employee’s share and the employer’s share of those taxes as well as penalties thereon.</p>
<p>The student does NOT become liable for self-employment taxes if his employer wrongly failed to withhold FICA. (The employer may be liable for back FICA and penalties, not the student.)</p>
<p>The student employee is, as I said, only liable for income taxes.</p>
<p>
</p>
<p>I agree with this statement, which is about liabiity for income taxes, not self-employment taxes!</p>
<p>One further followup–if at some point down the road, the university employer discovers that it did in fact make a mistake in characterizing the student’s stipend as exempt from FICA, and is required to pay both halves of FICA to Social Security plus penalties, the university MAY try to contact its former employees and ask them to repay the university for their half of the FICA tax it has now paid on their behalf.</p>
<p>The employees will not owe any share of the penalties fpr failure to withhold and pay FICA–the employer will.</p>
<p>This is a very clearcut case. If she was a fulltime student getting workstudy income for a job at the college, that income is not subject to FICA. It is, of course, subject to income tax.</p>
<p>The overarching principle is that compensation paid to students by a university employer for teaching or research services that are “incident to and for the purpose of pursuing a course of study” are exempt from FICA.</p>
<p>Here is some of the relevant language in the IRS documents on the above webpage:</p>
<p>
</p>
<p>The documents then go on at great length for pages and pages to deal with the minutia that a university must consider when it decides whether a given research or teaching stipend is subject to FICA withholding.</p>
<p>But all of these things are considerations for the university employer. It is the one that will be liable if it makes a mistake and fails to withhold FICA when it should have done so. </p>
<p>If a mistake was made by the university paying the stipend, the proper remedy is not for the individual student employee to declare himself self-employed and subject to FICA.</p>
<p>Instead, the university will be assessed by the IRS for the money it should have withheld for both halves of FICA plus penalties. (And, as I said above, the university has the option, if it chooses to do so, to try to track down those student employees years later and ask them to repay the university for their half of the FICA taxes which it should have withheld in the first place years before.)</p>
<p>But in any case, the student employee is not responsible for paying FICA or self-employment taxes on his 1040.</p>
<p>Wisteria, thanks for the info and links. This was a summer job and he is not a student at the school for which he was working. He was, however, doing work related to his major if that matters.</p>
<p>Although this is a less clear-cut open-and-shut case than bandit_TX’s daughter (employed in a work-study job by the college she was attending fulltime), it is NOT the student’s responsibility to calculate his FICA liability.</p>
<p>It is the responsibility of the employer to correctly figure and remit FICA payments to the government. </p>
<p>If the employer makes a mistake and does not withhold the correct amount of FICA, the employer is still the one responsible for paying the FICA to the government!</p>
<p>Here is a clear quote from the IRS instructions to employers:</p>
<p>I think this makes it quite clear what your child is obligated to do on his tax return. His job was clearly NOT “self-employment,” so he doesn’t owe self-employment tax. </p>
<p>It’s possible that his employer should have withheld FICA and remitted that withheld amount plus the employer FICA to the government, but that is NOT your child’s responsibility to compute and remit on his 1040 this month.</p>
<p>The only amount that your child needs to remit to the government is his income tax liability, which should be fairly low, as I indicated above.</p>
<p>If, at some point down the road, the IRS determines that the employer should have remitted FICA, it will go after the employer. It will not go after you child for the FICA.</p>
<p>At that point, the university employer may choose to write to your son to explain that it made an error in withholding and would like to recover the money it should have withheld. But that would be a matter between your son and the university, not between your son and the IRS. (In that worst case scenario, by the way, the university would only have the right to request half of the amount that your husband is talking about in self-employment taxes. It’s also possible that by the time the university finishes arguing about its liability with the IRS and determines that it did in fact make an error in withholding, it may decide that it’s impractical to try to collect the money it erroneously failed to withhold, because of the difficulty in tracking down transient student research assistants who have been gone for several years. In any case, there will certainly be no penalties for the student to pay, because the responsibility for correctly figuring FICA was the university’s NOT the student employee’s.)</p>
<p>So although xiggi was correct to point out that this is a tricky area for university employers and there has been a lot of back-and-forth discussion between the IRS and universities, bottom line is that it’s not your son’s responsibility to figure out his FICA liability and remit it to the IRS. That is the employer’s responsibility.</p>
<p>Wisteria, the main disputes between students, colleges and the IRS related to the the categorization of the income earned by graduate students. </p>
<p>In this case, the student was clearly working a summer job. Inasmuch as I understand the distinction between being an independent contractor versus an employee, and the potential liability of the employer who failed to withhold the taxes. However, I do not believe that there is any question that the student owes HIS share of the FICA or 7.65%. </p>
<p>I would highly recommend to contact both the former employer as well as IRS to discuss this situation. One solution might be to ask the former employer to disburse an additional 7.65 and allow the student to remit the full SE taxes. I do not think that it is a good idea to willfully fail to pay a tax that is clearly due nor do I think that there is way to report this income without triggering a flag because of the inconsistent reporting. </p>
<p>It’s indeed possible that it will trigger a flag, and cause the IRS to deal systematically with the employer to remedy the situation in a clear and consistent way for all the employees whose withholding is in question. </p>
<p>It’s clear that it is cheaper and more efficient (from the IRS point of view) to collect all the money directly from the employer (which was how it was supposed to come in in the first place–if indeed the employer made an error in interpretation) than for each individual student employee to remit their share with their 1040 and the employer to remit the rest.</p>
<p>This is a confused and evolving area. There is a clear-cut “safe harbor” provision for student exemption from FICA which applies to situations like bandit_TX’s daughter, but that doesn’t necessarily mean that every situation falling outside of the “safe harbor” situation necessarily disqualifies for the exemption.</p>
<p>(“Safe harbor” is an accounting term which refers to very clear-cut and relatively simple cases where the law is clear. For example, in another context, there is a safe harbor for underwithholding penalties–if you had more withheld in 2005 than your 2004 tax liability, you are exempt from underpayment penalties on your 2005 taxes. But the “safe harbor” easy method is NOT THE ONLY provision for exemption. There are others as well.) </p>
<p>Many university employers are deciding they will stay within the limits of the safe harbor provisions in their withholding policies. Others may decide they want to try to negotiate a more complicated strategy–and the tax rulings on this subject did go back and forth a good deal last year. </p>
<p>It’s conceivable that the employer was just confused and made a mistake. But it’s not each individual employee’s responsibility to try to sort this out individually–that would be a very inefficient and needlessly expensive to the government process. </p>
<p>In the case of FICA taxes, the government finds its far more efficient to assess employers–and, if the employer has made a mistake, to let the employer recover from the employees.</p>
<p>I really don’t think there is any good reason for over30’s son to complicate matters by trying to file a return with FICA taxes that the IRS does not want to collect directly from him. (This is just likely to confuse matters.)</p>
<p>There is a very well-established procedure for dealing with situations like this–which come up quite frequently in situations that don’t even involve students. I think over30’s son should deal with his personal responsibility (which is his individual income tax) and let his employer deal with his responsibility (which is correctly computing and remitting FICA.)</p>
<p>By the way, it is also acceptable for an employer to pay both halves of FICA taxes without withholding them from the employees paycheck. I used to work as a faculty member for a state university that paid its employees that way. They would quote a certain salary–say, $20,000, but they would pay both halves of FICA, without deducting either half from the $20,000. </p>
<p>Actually, I used to do the same thing when I hired a babysitter to take care of my child–I paid both her share of the Social Security as well as my share of the Social Security. The IRS was perfectly happy to have me do it that way. They didn’t care whether I deducted her share from her pay or not, as long as I remitted the full amount to them. So I quoted her a rate of $8 per hour (generous back in the mid-80s) and I remitted both halves of the Social Security computed on that basis but didn’t deduct any of it from her pay. She wanted to work off the books, but I wasn’t comfortable paying her that way, so I just said I would pay both halves and she said okay. (She was a student, who only worked for me part-time, and her income was sufficiently low that I was not required to withhold income taxes from her pay, fortunately.)</p>
<p>There is, strictly speaking, no requirement for employees to pay FICA. The FICA tax is assessed on employers and those employers in turn have the right (but not the obligation) to assess their employees for half of the cost of that FICA. Employers do have the option to pay both halves of FICA for their employees.</p>
<p>I checked my D’s W-2s from her 3 jobs–2 summer jobs at non-university employers, 1 university job (private MA college) during the school year (in the mail room, so not connected with her future job plans unless working for USPS is in her future).</p>
<p>In the 2 summer jobs with non-university employers, no “Social Security tax” was withheld, but “Medicare tax” was withheld. In the fall job on campus, neither “Social Security tax” nor “Medicare tax” was withheld. </p>
<p>A lot of school systems do not contribute to Social Security–they have their own retirement systems. Maybe that is why no Social Security was deducted.</p>
<p>Does anyone know what the limit for filing MA tax return is? ie, D is college student there, and made under $50 in MA. Does she have to file a return? I looked on their website, but was unable to find the info. I e-mailed them, but they have not responded.</p>