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Fellowship Taxes

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jhartsho
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Fellowship Taxes  Reply with quote  

Hi all, I am starting my PhD this August and was awarded a fellowship on top of the normal graduate student stipend. The stipend is $15,000 a year, paid monthly with taxes - my W4 has me with an allowance of 1. This past year I ended up getting a couple hundred back in federal and only about 50 back in state (Arkansas) making this amount.

This fall I will start a fellowship. The stipend stays 15k but I will then have an addition 10k on top of that from a different cost center that does not have taxes paid on it. I talked with our graduate school secretary who says that the school does not have a way to pay out additional taxes throughout the year to avoid paying them come April. I figure the easiest thing to do would be to remove maybe $100 every month and put it in a savings acct to then pay off taxes the following year. However, I know myself too well and am fairly sure that, if it's there, I will spend it. I'd like to say I would be smart enough not to but I can't say that confidently.

What are some suggestions as to how to handle this? Should I just suck it up and start the savings account? I also thought about opening a CD that expires in maybe 6 months but don't have the $500 it takes to open it right now. I'm not aware of any payment plans through the IRS to pay in advance but maybe I'm missing them?
Post Mon Jun 04, 2012 9:56 pm
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clydewolf
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Re: Fellowship Taxes  Reply with quote  

quote:
Originally posted by jhartsho


What are some suggestions as to how to handle this? Should I just suck it up and start the savings account? I also thought about opening a CD that expires in maybe 6 months but don't have the $500 it takes to open it right now. I'm not aware of any payment plans through the IRS to pay in advance but maybe I'm missing them?

Jhartsho,

Congratulations on acquiring a Fellowship!

Without knowing your filing and dependent status and your income to date it is impossible to estimate your income tax.

The IRS has some safe harbors for paying income tax.
- You will owe less than $1,000 after subtracting your withholding and refundable credits from your total tax.
- Your withholding and refundable credits is at least 90 % of your tax.
- Your withholding and refundable credits will be at least 100% of the tax shown on the previous year's tax return.

Failing any of those safe harbors, you can make estimated payments.
This link has all that you need to know about estimated payments: http://www.irs.gov/businesses/small/article/0,,id=110413,00.html

Use Form 1040-ES when you make a payment.
The next estimated payment is due June 15, 2012, then September 17, and the last is due January 15, 2013.
Post Tue Jun 05, 2012 12:41 am
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jhartsho
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Thanks for the congratulations. I visited the website and I do fall into one of those categories. I think the last couple deadlines should be enough for me to cover what I will earn from the fellowship this year - I will only have 4 months with the additional income. And my taxes taken out have changed so I would have to go through my stubs to calculate my income to date. I file single with no itemization so it should be fairly easy to fill out - I am apparently just terrible at navigating the IRS website.

I really appreciate your help.
Post Tue Jun 05, 2012 12:59 am
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clydewolf
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Jhartsho,
quote:
I file single with no itemization

A 2012 Standard Deduction for filing Single = $5,950
A 2012 Personal Exemption = $3,800

A Single filer in 2012 will have their first $9,750 tax free as long as they are not claimed as a dependent on another tax return.

The next $8,700 (Taxable income $1 to $8,700) is taxed at 10%.

Then the next $26,650 (Taxable income 8,700 to $35,350) is taxed at 15%.
Post Tue Jun 05, 2012 3:01 pm
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jhartsho
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Thanks again. I downloaded the 1040 ES, triple checked all my numbers and my estimated tax payment is less than $1,000 which means I'm not required to pay estimated tax. However, that, to me, means that I will be paying that amount (it's 566.61) next April when filing season comes around. Is that a correct assumption?

If so, I still want to pay that amount so I'm not shelling out 566 dollars in 8 months. I would imagine that I still can pay that amount....I'm just not required to. It ends up being just over $100 from each fellowship check which is easy enough to do. Can I still pay them in advance to cover that additional tax for next year?

I am signed up for the electronic payment system through the IRS to pay back taxes from a couple years ago. I am going to try and pay ahead of time through that system and hope it is applied towards this fiscal year.

Thanks again.
Post Tue Jun 05, 2012 6:24 pm
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clydewolf
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Jhartsho,

quote:
However, that, to me, means that I will be paying that amount (it's 566.61) next April when filing season comes around. Is that a correct assumption?


Yes if you owe the tax it must be paid.
Because you are in one of the safe harbors, owing less than $1,000, you could pay the balance when you file early 2013.

You can do that through estimated payments or withholding.
Withholding is the best, because the IRS assumes you have made the payments throughout the year.

You could submit a new W-4 having the same status you do now but ask for an additional $100/ month to be withheld.
That makes the payments automatic, you would not need to do anything else.

quote:
I am signed up for the electronic payment system through the IRS to pay back taxes from a couple years ago. I am going to try and pay ahead of time through that system and hope it is applied towards this fiscal year.

I would not do that.
That account was arranged for back taxes to be collected.
Today you are trying to pay ahead.
The IRS could have your money but it is in a collection account for a prior year.
In about 2 years you would get this money back with interest.
Post Wed Jun 06, 2012 1:02 am
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jhartsho
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The woman who distributes the fellowships told me that was not possible. However, I got my W4 and it IS possible. Thanks for telling me about the website. They do not say anywhere on there that it is specifically for back taxes. In fact, the first option is to pay for the upcoming year, so I'm glad I held off for your response.

August is my first payment so, on August 1st I will change my W4 to take out an additional $100 a month for the rest of the year.

I cannot tell you how much I appreciate your help. I asked half a dozen people at the university and nobody had a clear answer for me. You gave me succinct answers that have helped me greatly. I sincerely appreciate it!
Post Wed Jun 06, 2012 1:55 am
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soybean
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quote:
Originally posted by jhartsho
The woman who distributes the fellowships told me that was not possible. However, I got my W4 and it IS possible. ...

August is my first payment so, on August 1st I will change my W4 to take out an additional $100 a month for the rest of the year.

For the benefit of forum visitors, I think some clarification about exactly what you're saying might be helpful. You said, "I got my W4 and it IS possible." The W-4 is simply a form for you to report your tax withholding status. But, your comment implies that the W-4 enlightened you about the fact that you could adjust it to have more tax withheld, enough to cover the anticipated tax liability from both sources of income. Exactly how did you arrive at the conclusion? Was it the information at the top of the W-4 form?
Post Mon Jun 11, 2012 4:17 pm
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oldguy
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quote:
school does not have a way to pay out additional taxes throughout the year to avoid paying them come April. I figure the easiest thing to do would be to remove maybe $100 every month and put it in a savings acct to then pay off taxes the following year. However, I know myself too well and am fairly sure that, if it's there, I will spend it. I'd like to say I would be smart enough not to but I can't say that confidently.


jhart - this might be a great learning opportunity for you, you are obviously going to enter a career as a highly educated person, it would be a shame to avoid Tax Code and keep following the Urban Legends.

Consider this - the average USA worker got a tax refund check for $3004 in 2010. Now why in the world would the average family purposely overpay a future bill by over $3000? And then wait for the IRS to sent it back to them the following April? Even sillier - some workers pay HR Block to calculate their taxes, then pay an extra $50 to get a $3000 "instant refund" (ie, $50 to get their own money refunded earlier).

Why not take a tax course (HR Block has one) and get a basic knowledge of the Tax Code. I've done my own taxes since 1957 - salary, rental houses, depreciation, capital gains, profits from the Market, yada. It's not rocket science. The point isn't to save $150 a year (in fact it may pay to have a pro do it after you do ii). The point is to gain a working knowledge that you use as a tool to guide your financial decisions, in your case. maybe for the next 65 years. You've probably heard stories about doctors buying an LLC that owns purevbred bulls in TX so that they get a 'write off'? - a 40 hour class would head off those expensive mistakes. Purveyors of time shares, whole life insurance, annuities, penny stocks, all depend on public 'cluelessness'.

And building to discipline required to project your annual bills will also serve you well for a lifetime - the Tax Bill, the house property tax, your house insurance, your umbrella insurance, your car insurance, your car tags, christmas - there are lots of bills that acrue annually.

And there is a major difference between how we humans treat "found' money and "earned" money. Case in oint - where is that $250 refund that you got last year?
Post Mon Jun 11, 2012 6:15 pm
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clydewolf
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quote:
Originally posted by soybean
quote:
Originally posted by jhartsho
The woman who distributes the fellowships told me that was not possible. However, I got my W4 and it IS possible. ...

August is my first payment so, on August 1st I will change my W4 to take out an additional $100 a month for the rest of the year.

For the benefit of forum visitors, I think some clarification about exactly what you're saying might be helpful. You said, "I got my W4 and it IS possible." The W-4 is simply a form for you to report your tax withholding status. But, your comment implies that the W-4 enlightened you about the fact that you could adjust it to have more tax withheld, enough to cover the anticipated tax liability from both sources of income. Exactly how did you arrive at the conclusion? Was it the information at the top of the W-4 form?


Line 6 of the certificate reads. "Additional amount if any you want withheld from each paycheck."
Post Fri Jul 13, 2012 9:03 pm
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clydewolf
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 Reply with quote  

quote:
Originally posted by soybean
quote:
Originally posted by jhartsho
The woman who distributes the fellowships told me that was not possible. However, I got my W4 and it IS possible. ...

August is my first payment so, on August 1st I will change my W4 to take out an additional $100 a month for the rest of the year.

For the benefit of forum visitors, I think some clarification about exactly what you're saying might be helpful. You said, "I got my W4 and it IS possible." The W-4 is simply a form for you to report your tax withholding status. But, your comment implies that the W-4 enlightened you about the fact that you could adjust it to have more tax withheld, enough to cover the anticipated tax liability from both sources of income. Exactly how did you arrive at the conclusion? Was it the information at the top of the W-4 form?


Line 6 of the certificate reads. "Additional amount if any you want withheld from each paycheck."
Post Fri Jul 13, 2012 10:08 pm
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dustinedan2
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Most individuals assume that scholarships, grants, and fellowships for students in higher education are free of income tax consequences.
Post Sat Mar 09, 2013 7:00 am
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