Fellowship Tax Issue

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wildhaggis
Posts: 196
Joined: Sat Oct 15, 2011 1:47 pm

Fellowship Tax Issue

Postby wildhaggis » Wed Mar 11, 2015 11:29 pm

Posting this on behalf of a friend who doesn't post here (sounds like an excuse, I know, but hear me out).

Basically, he went to a law school that provides a sort of fellowship for up to a year after graduation where they basically pay for you to work somewhere else. So, in this case, he worked at a state's attorney's office and got paid essentially a stipend by the law school while he worked there, to no expense of the state's attorney's office.

The stipend was really bare bones and hardly covered bills. He's since found a job that pays at least a livable wage, but is getting absolutely fucked on taxes for this stipend income. It was reported on a 1099-MISC as "Other Income" and basically gets treated as self-employment income and taxable income. The outcome is he gets taxed at a rate equivalent to what I paid on biglaw income. Dude can't afford the payment.

What little I've read indicates this "stipend" should have been reported on a W-2. Does he have any recourse here? Pretty scary situation, honestly.

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Tiago Splitter
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Joined: Tue Jun 28, 2011 1:20 am

Re: Fellowship Tax Issue

Postby Tiago Splitter » Wed Mar 11, 2015 11:40 pm

He'll just owe the 7.65% employer portion of Social Security and Medicare tax over and above what he'd otherwise owe if the income showed up on a W-2. Sucks but not the end of the world. The nice thing is it's a lot easier to take deductions when you get self-employment income so he should look to see if he can deduct any of it.

I'm not an expert but the 1099 over the W-2 sounds right here. He wasn't working for the payer.

wildhaggis
Posts: 196
Joined: Sat Oct 15, 2011 1:47 pm

Re: Fellowship Tax Issue

Postby wildhaggis » Thu Mar 12, 2015 1:32 am

I'm honestly not sure how this works. What little I've read has him owing a pretty exhibitant amount over what he'd owe for just typical wages.

Basically, he made 15k on that 1099-MISC and owes a third of it.

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Tiago Splitter
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Joined: Tue Jun 28, 2011 1:20 am

Re: Fellowship Tax Issue

Postby Tiago Splitter » Thu Mar 12, 2015 8:19 am

Well he'll owe 15.3% for Social Security and Medicare plus his normal marginal rate, which will depend on the income he made from his other job. Like I said that's just the normal amount we all pay plus the extra 7.65% portion of the social security and medicare tax. Obviously the tough part is that nothing was withheld so he has to pay it all in one fell swoop.

His best bet is to talk to a tax professional who can help him hunt for ways to deduct some of the self-employment income. Mileage, internet, phone, computer, educational materials, etc. should all be on the table. Also if he graduated in 2014 he should still be eligible for one last Lifetime Learning Credit.

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SemperLegal
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Re: Fellowship Tax Issue

Postby SemperLegal » Thu Mar 12, 2015 11:19 am

wildhaggis wrote:I'm honestly not sure how this works. What little I've read has him owing a pretty exhibitant amount over what he'd owe for just typical wages.

Basically, he made 15k on that 1099-MISC and owes a third of it.

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