 Thank you, Sam. Daniel, I appreciate it. My name is Ed Jennings as Sam mentioned I've been the tax director here for over 25 years and every once in a while we come out we get to give this presentation So I hope you enjoy it We're gonna talk a lot about taxes in general typically using taxation of scholarships and fellowships as a sort of example as we go throughout this We're gonna it's a very interesting Discussion and I think hopefully education and I think part of that is is because we're going to talk about a Tax burden that graduate students Inherit as as their role based on how the tax laws are written in other words you have quite a quite a burden Placed on you when it comes to doing your taxes. You have to identify your tax. You have to quantify your tax You may have to pay them in quarterly And you may have multiple state tax forms to file And income tax forms so as we go through this I just want to we want to talk a lot about that and as Sam mentioned if it questions feel free to raise them This is a powerful in presentation that you should have access to This will be very handy. We have some case studies in here. So it should help you as we go through As a qualification I have to let you know as a tax director between the University of Michigan I'm not allowed to actually give personal advice to individuals including president Oh no for insurance and risk reasons, but I'm allowed to come out here today and talk about taxes that actually may affect your situation Because this is an educational format So for the next hour and a half any and all questions you have that are your tax questions That may be your personal tax questions You are free to ask because that's going to be viewed as educational, but do know afterwards I'm not going to be able to or anyone on my team is going to be able to help you answer any of your questions So I just want you to know that the good news is again, you have access to this presentation It is taped so that'll help And there's and we'll mention certain resources at the very back of the presentation There are certain IRS publications that you can refer to now again their IRS publications So keep in mind the IRS writes them for there In their favor, of course, you know the IRS is another party to a court case That's how that works and they write all these publications to be as helpful as they can As long as it helps them as well So that's something to keep in mind meaning there's other positions You may take that are different than what you're reading in the publications, but just the same It's very helpful as a learning tool And then you of course you've got master tax guide and things like that that you can find in the library Other things and there's turbo tax and those kind of things you can use the software systems when you go to prepare your return So there's a lot of help out there So there's more access than just me but just to say during this next hour and a half any questions you have feel free So on that note one thing I do want to say too as we go through this Um And this is certain distinctions we need to make when we talk about the tax burden It's actually heaviest on certain students and they would be u.s. Citizens or resident aliens. This is always defined by the code Uh, whereas non resident aliens what we call nra's Actually have a little bit easier and we'll explain that as we go through but just keep in mind There is a distinction on how how this works as we go And the agenda that we're looking at here just really some general basic questions that you're going to ask So what's taxable income for federal tax purposes? And uh, we're also going to have that question for state and basically they're identical Um, how is our taxes paid? How's this happen? I have taxable income. How's it get to the irs? How's all this work? And then how do I file my taxes? What what's my burden? What's my obligation? And then basically do I have do I have to pay in Payments quarterly? When do I have to make the payments? So these are there's a Series of questions that you're going to want to ask and then what about multiple state tax returns? I mean, I'm not from michigan originally. Do I have to be concerned and and that's at the state level And we have both the case study for fed and state So you'll see as we go through that we try to simplify it as much as we can But at the same time try to get the essence of the issue. So if you have questions as we go through feel free um, so now we're going to just look at some general concepts and um The question is what's taxable income and basically there's certain series of principles that you abide by When you actually do taxes and they're all here in the internal revenue code and many of them are right here on this page So the first thing is what's the definition of taxpayer and it's very broadly defined um Taxpayers or individuals trust the states corporation exempt organizations Yes, we even have income tax called unrelated business taxable income, which is really where we spend a lot of our time And we have to pay taxes and we're an exempt or The definition of income is broadly defined. So it's really an accretion of wealth Wages interest dividend income cap gains, but keep in mind They tax happiness if they could if they could quantify it. So it is very broadly defined Um, it's interesting. We're going to be talking a lot about income taxes But there's also another tax that's on your wage statements. Uh, that's on uh, it can be on your tax return Which is self-employment tax or fica And uh fica is really when you're employed your employer has to has to collect fica from you and pay fica They pay half your fica Uh, the fica tax is 15.3 percent for self-employment and the employer will pay half of it But you have to pay it now as a student if you're a gsa or something like that You may actually be excluded from fica because there is an exception for students But if you're working at wendy's or something, it's not going to apply So you may hear of fica. We're really going to be talking a lot about income tax here And particularly when we talk about fellowships and scholarships We really don't see fica much But you should know enough about it because from time to time the irs will send out no irs notices basically, uh You know assessing you fica taxes when they're when they don't apply So that's that's the uh, that's the other tax regime fica, but you'll hear about it It's in the background, but it's not the main player of this presentation Um, now the tax rates for fed or on a graduated basis When you look at state when we get the multi-state summer flat tax all the way through like michigan others are graduating at the fed When they're graduated what it means is is Um The more income you have of course the higher Uh, the more income you have the higher the tax rate is So the tax rate will be higher on that dollar Uh, the same dollar you would you first made uh would be much slower So if i'm making 10 000 you're making 20 000 Your last dollar is going to be taxed at a higher tax rate than my doll because i'm going to lower bracket And that's the concept they always say oh you bumped me into a higher tax bracket The only time that's a problem is when they're taxing you over 100 so that's not a bad thing But you are going to pay more in taxes. You're going to have less earning power per dollar as you go from bracket and you increase and promote from bracket to bracket um, and then there are uh One question we did a lot is so when we filed the tax return. What's it based on? Well for the u.s. It's actually typically the calendar year january to december and uh Um, it's on a um, uh on a cash basis. So, um, you know, if you've Someone says they're going to pay you next next year Uh, and uh, they don't pay you until next year. It's not going to be taxed until next year It's a cash basis next year would be from that january through february through december, excuse me And it's those 12 months And it's a bucket so anything you get in january june and july all goes in the same bucket If you get it from different sources, uh, um, it could be from wendy's. It could be your scholarship. It could be, uh, Raffle winning it all goes into the same bucket. Sometimes it's treated a bit differently in that bucket, but it's all in the same bucket Um, and you'll see an example on that how it goes Something I do want to mention is the this really is where the resident non-resident alien distinction comes in The internal revenue code subjects the tax payer on its worldwide income That would be the u.s citizen and resident alien does your deem to be The resident alien is really a foreign-born person who's been here long enough to be considered to be a u.s citizen They don't have u.s citizen rights or anything, but will tax you as if you do and, um, basically, um Wherever you go in this world And you make money you will have to pay to the to the to the irons So you go over to ireland that was always an example We had my day and you sell paintings and art. They have a very low tax rate 12 Well, they're gonna want to get their tax you were in their country when you when you sold them when you sold the art But then you get back to the us and they're gonna want to tax you on your art as well And they will give you a credit to the extent that you paid the money to ireland But you're gonna pay a tax and the tax is usually higher than ireland, which is why you went to ireland in the first place You still have to pay the tax So it's something to keep in mind and this is a concept that's not just between the us and foreign countries It's it's within the states themselves and you'll see that with our example at the very end when we talk about multi-state Ed yes for resident alien f1 students does the education deduction, which is $1,000 still apply Well, it depends if they're if they're truly a non resident alien They'll be filing a 1040 nr and they get very few deductions The good news is there is a software that international Center has and it will it's for free and it will walk you through that Now the problem is saying that question can be changed because if you're married then you may be able to file as a On a on a 1040 as if you're a u.s. Citizen and then you could be able to get it So there's many different ways to get that And it's a very difficult scenario. So you really have to know all the facts and circumstances But I do know what you have is a free software that you can use at the international international operations center And it will help you get through that um And then lastly it's a pay as you go So if you earn if you earn the tax and or you're in the income in february you pay the tax in february And you see that a lot when you have um When payroll anytime every two weeks they pay make a payment to you or every month if you're paid monthly or even weekly You say, oh, I earned 300 bucks this week and you turn around and go But i'm only getting 200. Well, 100 has been taken out for taxes and they take that out. They they take it out as you go um, so when you go to do your tax return now again, we talked january through um december and at the end of 2023 you have to file your taxes april 24 We don't pay your taxes april 24 You should have been paying your taxes all along through 23 In april 24 you reconcile you just determine how much you you owe how much you paid and then you pay in the difference Or the difference is refunded to you So that's basically how it works So it's a pay as you go and that's very important because that's the concept when we talk about estimated tax payments A lot of times your employer is doing the withholding for you So you're paying as you go except you don't really notice it because your employer is doing it on your behalf But if you turn around and you have um, you have to do it Where and that's this burden that the us citizens and permanent residents are picking up then you have to do it And when you have to do it you're going to have a situation where you have to Determine whether you have to make that payment and if so when so again, this is much more of a burden On students and then most taxpayers have and interestingly enough you haven't been a taxpayer very long so No offense. So the idea is I find it interesting that they they give you this burden So at that i'm going to stop and see if there's any questions sam and general Yeah, we've got a couple our certificate of deposits considered taxable income So that's an investment. It's the interest on it and they should give you a 10 99 int for interest But yeah, it'll be earning interest. That's the whole point of a cd You put it in a bank and you say I promise i'll keep it there for two years or so They get to take it and invest with it, which they really like in the meantime They're going to pay you interest that interest is an accretion of wealth. Yes, it's tax and it's taxable income For a fiker. Thank you for a fiker refund. Do we request the university of michigan payroll office? Well, that would be an interesting question a fiker refund is your employee And you're basically saying I shouldn't have but I shouldn't have had this. I was a student I should have been subject to it. I won't get it because I am subject to fiker But if you you met the exception always contact payroll They need to know because the two of you are paying it in and you both need to coordinate your your your actions So yeah, always reach out to pay Okay, thank you for an international grad student Who up until august was a gsra at the university at a university in ohio So they have documents in two states and at two different universities And they're not sure what to do Well, that's our multi-state agency question. We'll get to that at the back end of the presentation. Okay. Thanks. And so Does someone get a tax treaty for example u.s. China tax treaty? If they can what form would they need to fill out? Well, I think a lot of that is when you come to treaties treaties is something that You're really going to it comes out to any kind of payment that is do you? You're going to want to talk to payroll if it's something that goes on a 10 42 s Or any kind of form that they're going to be issuing you And I say that because they you have to get them to understand what you want them to do So they don't have to withhold because sometimes the whole value of a treaty is it saying no that isn't subject to tax You don't need to withhold and where there's the general law will say it is subject to tax So the treaty overrides the general law and you're going to have to convince payroll I'm I'm with this treaty this treaty says this our payroll does not go by treaties It goes by the general law by the internal remedy code So you will need to say if I have a treaty that says this is in my favor you need to reach out the paper Okay, okay. Thank you and for nra's do things like referral bonuses on credit cards count as income Well, uh, yeah, we'll talk some about this today too. Uh, that could be taxable income That depends on the facts, but generally yes, it sounds like and the question is is an accretion of wealth Is it something you have now that you didn't have before? Um, and yes, okay But then the next question is all right, then so what happens and you'll hear we talk a lot about reporting People need to report things to you when they asked about the cd. It's the interest Well, you're not going to know whether it's taxable or not But they send a form to you a 1099 int and that tells you that identifies it for you So you tend you tend to want to get you have to look for a form in the mail And that's usually going to tell you it's taxable income Thanks Ed if someone did consulting for a non-us government In last tax year, what kind of documentation do they need? It all depends it depends whether you're a us citizen or you're from that country and so on But by no line is um that if someone's going to pay you something Uh as a consultant, they're going to ask for that documentation They're probably going to give you what they're going to ask you What they need and then that's be able to meet their tax obligation So the real question is is if they if they're not sending it to me Do I still need to do something and that's really what it is my sense is it's a lot of times It's best to call that company and ask um And say listen for the tax situation. How's this work out and uh in the u.s They'd say well, we'd give you a 1099 NEC and you should have gotten it at the end of january and you say that's for the 23 year and you'd say Oh, yeah, I got that and that's fine. Yeah, they may say no we put you on a miscellaneous We don't know why it doesn't sound like it And uh you'll get that at the end of march So anyway, the idea is uh you always go back to the person who paid you money and ask if there's any Are you if you if you're interested, uh, are you going am I getting a tax form? We get those questions here, so Okay, and thank you. This will be the last one y'all because I know that ed will be answering some of your questions. Um in The rest of the presentation How does reporting losses affect your taxable income? reporting losses losses Yeah, so one you have to make sure they're business losses. Uh, you can't say, uh, you know, I I was um lost my shirt. Uh, I'm going to take a loss of my tax return. It's not a business. So, um But that's called and there's a code section for it 165 and if you read through it, it'll tell you how it works But basically, um losses just go on your return under other income and you have to explain it Do know the explanation should be real detailed Real fact based because the IRS is going to question anything and everything that's a loss Um, the real question is if it's more than the rest of the income is does it give me a now I have a negative? Um, what happens there and you get the carried forward? So we have we've had businesses that have a loss at the end of the year and we call it a net operating loss And they carry it forward So you want to make sure it's legitimate and they offset and again, you're in a bucket So it offsets everything else So the interest from that cd will be offset by the loss And if it's if the loss is more you may now have a negative balance and you can only have zero in your return So you carry forward the negative balance uh to next year is a careful Thank you. All right So, um, so now we're going to launch into some more details of the tax return to give you some comfort to it And talk about various forms. Here is the the tax brackets We talked about and the graduated rates and you can see at 10. That's the lowest. That's where I would like to be That's good from zero to 11. That's if you're single Now keep in mind, they have various statuses You can be married and you can be married separately and you're treated like single or you're married jointly and basically everything's double You can also be ahead of a household. Typically a single mom with kids Um, and they get a bit of a break Uh, and understandable and uh, that's the brackets and again, you're you're making a lot of money This is really and this is net taxable income. That's after all the deductions. Uh, you're going to be hit at 37 So, um, that's how it works. And again, some states have a graduated bracket So let's talk real quickly about scholarships fellowships is general rule. It's an accretion of wealth So you would think it's taxable income, but there is an exception for qualified scholarships So what's a qualified scholarship? Well, that's a payment basically and the definition is a candidate for a degree That's made for the purpose of conducting research at an educational institution. Um, that's here. That's you guys That's not a problem. It's really a payment for your uh, tuition and anything that's considered to be part of um, the tuition and a roman fee Uh, it can even reach out to, um Material supplies and so forth that's required for the curriculum not recommended but required Um, that's all going to be part of the qualified scholarship and that is considered tax free It's it's not going to be considered taxable. It does not go on the tax return The non qualified scholarship and typically we see this in the form of cash So you get a stipend and it's a check you turn it to cash and it pays for your personal expenses. That's taxable income Um, so, uh, basically if your tuition is waived It's not going to be taxable income, but the 12 000 you receive every two months. That's going to be taxable income Unless you spend it for something like that's required part of the curriculum certain books So that's basically the concept. We'll talk some about that as we go through Do keep in mind we're talking income and i'm looking at the bottom here self-employment fica That's not necessarily scholarships is not considered to be considered to be sorry earned income Earned income is what's subject to fica. That's what a wage is. What's what i'm doing right now? I'm earning my wage, but you folks on a scholarship. You're pursuing the The study of education in academics and that's not considered to be earned You're not doing that for an employer. You're doing that for the betterment of community the betterment of Society and for that reason That's not going to be earned income. So just to let you know Parts of what you're receiving your and a good good way to look at this is a someone in sports who gets a full ride They get the tuition way to the room and board room and boards taxable room board is not the tuition Room and board is not anything we said. That's a required for enrollment or attendance at the class. It's not It's not it's not for study. It's not like a purchase of books. It's a room and board That's actually taxable taxable income and they have to value what that is and put that on their tax return And they get a stipend in addition to that it's taxable. So the n i l all these fees you hear about it's all taxable income when they receive it How is the tax paid now? This is very interesting because this is how it this is the mechanism by which the irs gets their money Um, and it's usually through a form. Typically forms can be bad. You're like, oh my god I got my tax form. It's gonna have terrible things to it Not only that they're whatever they're telling me they told the irs all that's true But the form is good in the sense. So you've got a w2 Your employer will actually put the wages on the w2 letting the employee know What the taxable wage is you don't have to identify it. It's already there Also, as we mentioned the employer will withhold every time they make a payment to you And that withholding goes right to the irs. That means your taxes have been paid on your behalf That's great because that means all you have to do is file your 1040 form at the end of next april And uh, april 15th and shoot it in but somebody's already done the payment for you You're just looking to either make a smaller payment, whichever it didn't cover or get a refund. That's the idea A 1040 to s is a form that an employer files for that's nra And on that form, uh, it's going to have on their taxable income like the stipends and they will withhold And that's why nra's will want to go to the international operations center to pull up that software Because in most cases you're likely to get a refund Payroll does a lot of this. So where I told you at the very beginning of this, I'm not allowed to answer questions I'm not because I'm answering any kind of question you have on your personal tax advice But I can tell you if you have a w2 or a 1040 to s that's a form that the university provided you You have every right to call up payroll and say, what's this form? What's on it? How did I get it? Um, what's it mean? And they can tell you and they should be able to answer all your questions And again, that's going back to the question sammy asked about china the treaty That's when you talk to your payroll. You call up and say on the 1040 to s You're going to put something on there and want to know Um, if if you're going to withhold, I think i'm excluded as a student under article 14 And they say, oh, okay, so they were going to tax you now they want And then that means then you don't have to file a 1040 nr Um, and with the w2 Um, you know the good idea is if you're gsra you got a w2 because you're an employee for us Then when you get a scholarship, you're not an employee You're really working for yourself and that's for your own study your own growth And that's why it's not subject to FICA because there's not earned income. So that's the idea So the last form is a 1099 now they'll identify the amount for you, but they won't withhold Um, and we tend to send this out to businesses PWC is our auditors and they charge us for the audit report And we pay them money and we put it on a 1099 to tell the irs Here's how much we paid them So the irs looks at their tax return and make sure they're putting it on their tax return Um, what's interesting is If you're a scholarship or fellowship, you're not going to receive any of these forms If you are a u.s citizen or resident alien And and so there's no forms issued No one's identifying for you with the taxes and no one's doing and withholding for you So that's the burdens you're going to pick up. That's what we're going to talk about throughout the rest of the presentation Um, if you're a non-resident alien, we uh, the payroll office will issue you a form So they will identify it and they will do withholdings and you're that's why the burden is not as great on NRAs Actually for scholarships and fellowship. So that's the good Um, I don't have a lot of good news. So we should take a moment appreciate it So now very quickly, I just want to go through NRAs again. So you're very comfortable NRA, it's a non-us citizen who has yet to be here long enough to qualify as a resident alien To do that you wind up, uh, you know, there's a green card test presence test Um, and it says here it can be overwritten by the treaty which usually happens So many of our students there are treaties and the treaties do say you still remain as a as a resident of china You will not be a resident of the u.s. Um, oh for five years and your treat is an NRA Um, and of course in sam, this is one of the questions asked earlier by marriage you can become uh into a and be treated as a u.s citizen or a resident a resident alien so But as an NRA, you're only taxed on the u.s. Sourced income So the scholarship income you have here will be taxed if you sold art in ireland that art The proceeds you got from that sale of art will not be subject to the u.s It's outside the jurisdiction and because you're not a u.s citizen they can't tax you on your worldwide income So it's only u.s. Sourced income Now payroll they can answer a lot of questions that you have if you're a non resident alien and you get a 1042 s So do feel free to reach out to them. They're pretty good about it. They won't report and or nor tax your, um Um qualified scholarship what we talked about earlier, but they will tax and withhold your non qualified and uh But they can explain a lot of that if you feel they're taxing it when the treaty says otherwise you need to reach out and talk to them Um, and then here's where we've got some web addresses at the very bottom of this the international center Very helpful. They have some very knowledgeable people on what the rules are Uh, basically as we mentioned treaties help because they can reduce the income withholding or prevent it um FICA doesn't really apply much and you're going to find out why as you go through this but Uh, there's it's another it's another tax regime and it doesn't come under the income tax treaties Um, and then there's the form you have to fill out. It's a 1040 and r So we fill out a 1040 you get to fill out the 1040 and r and r for non resident Um, and again feel free to reach out to payroll and feel free to reach out to the international center It's all very good So now we're going to move into another topic. So this is dealing with we're going to get up to the 10 98 t I'll talk about that in a minute Um before we do we have a quiz and the quiz is Would you rather have a $50 deduction or a $15 credit? Um, and so the real question is what's the difference between a deduction and a credit? And in the left hand column, that's really how you fill out a tax return income Then you have a deduction then you come up with your taxable income do your tax Then you apply any credits if you have it and then here's what you owe So in the middle column, we're looking at a deduction. There's your $50. So it's 100 less 50 your taxable income is 50 Tax on 10 on $50 is five. You have no credit. You owe $5 So basically with a $50 deduction, you got it all the way down to $5 of tax Now with a credit You don't have a deduction. So you have taxable income $100 But at 10 that leaves you with $10 and if you have a $15 credit that the credit is greater than the tax You don't owe anything. So I'd rather have a credit Then it a $5 $15 credit is more powerful than a $50 deduction And in this case if it's refundable you get five bucks back. So I know that's exciting, but that's how I look at it Um There we are. Sorry. So that's how that works That's important because now we're looking at 10 98 t and they provide a deduction or credits most people like them for credits Um, this is a form. That's a good news form. We talked about the w2 and the 10 99 and so forth They're not good forms. They're telling you all about the tax you owe and so forth This tells you about a possible tax credit people like this form. You should look forward to this form There's two types of credits. There's the american opportunity credit, which is refundable and the lifetime learning credit Which is non refundable not as good, but still good um, most graduate students qualify well Very few graduate students qualify for the aoc the american opportunity credit Some of you may qualify for the lifetime learning credit, but it's interesting. I'll walk you through that in a minute Um, and again the 10 90 80 is a form. They have questions on the form You can reach out to student financial services. They will be more than willing to answer any questions that you have So to claim the aoc basically there are certain Restrictions to it all through I have to answer all these questions And there's one down here that usually catches us and this is the same question We're gonna see on the lifetime learning credit But we're the same expenses paid entirely with a tax-free scholarship Grant or employer education assistance and it's really the first pieces that count to you guys But to the extent you get a fellowship or scholarship for your entire tuition You don't have anything to take the credit on It's not anything that you paid for out of pocket someone else paid for it and Uh, it comes over here where you can't take the credit and that applies here as well Now, I know this says for the 23 year they have yet to come out with the 24 publication So we it'll say the same trust me. It said that for the last many years. So and I've got a couple of questions. All right So If somebody has an official statement of charitable cash donation Is that taxable income? Well, if you made a cash donations Um, that sounds like something charitable. You made a charitable deduction. You gave your money away to a charity You can get a deduction for that on your tax return. Um, but it's not income. It comes out of income It reduces your income. It's a deduction to income Okay, thanks. If scholarships exceed the cost of tuition fees Are refunds considered non qualified? Okay, that's a great question. So let's look at this piece. This is the form 10 98 t you get and in box one It says just what you said sam. What's your tuition? It says 10 000. I'm making these numbers up Then you get the box five. That's scholarships or grants. That's what we call a contra account That goes that has to be that reduces what's in box one So if you have 10 000 in box one and 15 000 in box two not only does it completely reduce it But there's five thousand dollars extra and yeah, if I were the irs I'd realize that means that your tuition was obviously 10 000 The extra five thousand dollars was a stipend that you received It had to be something but what you put in box one is only the qualified scholarship amount So That's what the tuition is the qualified scholarship and that's all you can put in box one is tuition So anything in excess on box five over box one that will basically indicate that now The problem is the irs hasn't had its system hooked up to be able to identify that as taxable income I just mentioned it is you now know it is but let's put it this way the irs if they know it They're not acting on it. So just the same but that is a mathematical way to do it other than that There's no other form. We give you that tells you what your taxable income is And remember some of the amount in box five that's in excess of one could be expenses for Items related to the curriculum which are deductible. So it doesn't mean it's taxable. It just means it's an excess of tuition But uh, you'd have to figure that out. But yeah, that's that is a way to go So I don't know if that I use this form to answer that question But basically this form is something that uh that our office the university michigan student services Will send out to just about every student who basically has tuition and you have your own student account and A lot of what goes into box one is your tuition itself And then box five is your scholarship and oftentimes for students who have fellowship scholarships five can be greater than one Yes, that can happen And that usually means that uh, you know you you have to account for You had some some stipends money laying around that you used for something If you used it for books required for the curriculum, it's not taxable But if you used it for rent it could be taxable income We then take that form and you put it onto this form if you're going to take it on your tax term Now again most if you have a full scholarship, you probably won't be able to do this But for some students you might be able to take this for instance, you got your scholarship in september But back at last in 23 Last winter, uh, you paid for an education at, uh, you know Um, Florida State University Um, and you paid the tuition if you paid the tuition You're going to get of 10 98 t from Florida State and one is going to be a 10 000 whatever it is And five is zero you're going to be able to take put $10 000 on this and see how much of it you get And again, it's based on your individual tax situation the wealth you are the less likely you're going to get it And that's how it works. So but that's what the credits are about I bring this up because everybody gets this form and we get confused. It's not meant to confuse you It's not an income form and you and we really don't give a form for your Scholarship or fellowship. This is just The back door and it's not really a reliable form and the irs doesn't rely on us with that way Um, but uh, I didn't want to just bring it up So you're comfortable with how that works and make a distinction It is a credit and we'll talk about credits as we go That's the good news But only if you're entitled to it and if you got a full scholarship, you're not going to be At least for our tuition. So that'll be an issue So i'm gonna stop there sam any questions Yes, so a student has had two of their paychecks show med slash ee and oasci Slash ee while the all of the others have shown Only fed in michigan withholding They have been a gsra and a gsi during this time They don't know why this is You know, it's a great question. I don't know the details. I do know payroll wage Yeah, they'll be very helpful And they're um, they're very good and I've worked with them for well They won't admit it but for many many years. So Thank you. So reimbursements for conference and travel or conference travel Are paid with fellowships and grant funds And folks have heard that this is considered taxable income Does the irs consider it such So because they technically didn't make the money Yeah, well, that's you know, I I get that But um, let me walk through a scenario and you know, come up with it So you have to travel you're going to do a study on the koala bear You know, obviously you got to go to australia Uh, that sounds like it's an expense part of the curriculum. Um, that's what you need to do You talk to your faculty and you get them to say it's part of the curriculum. It's required It's required that you be in australia. Heck. Yeah, you're gonna do a study on koala bear than that I could I could just sit here in the library and do it. I want you to go to australia And I want you that makes it required that would then be a qualified scholarship Or fall under the definition of qualified scholarship and not be taxed. You don't have to report that on tax return If your faculty member says, uh, I want you to study up on some technology I'm looking at my cell phone and you say great and you take a trip to australia. That's a personal trip That's going to be that's how you chose to spend your money In other words, the scholarship coming out is going to be taxable And then if you say but it's qualified then it won't be But if it doesn't meet the definition qualified, it'll be taxable And so qualified is it's got to be part of the curriculum. That's how you got to look at it Okay, thank you All right, go ahead. I'm sorry. If someone's both on fellowship And they need a refund but also working as a gsa gsi And they need to pay is there a subtraction that glacier app That is between both So I'll answer it briefly and then say we'll talk about it when we get to fully estimate tax payments So definitely bring it back up again. But what happens is everything's in a book everything's in a bucket And if you're a gsa, you know, that money gets thrown into a bucket and remember now it's on a w2 so they've been withholding on that And uh, if they're withholding a 20 percent your tax rates at 20 10 percent, they're over withholding And you go, wow, I don't want over withholding. What does that mean? That just means you're going to get a very large refund at the end of next April And if you say, well, wait a minute in the meantime, I got a scholarship and nobody did any withholding on that And I'm subject to that a 10 percent and we look at the numbers and we go, isn't that interesting? If I add them both together, I add up the tax and then I take the amount they withheld it covers the tax then It does there is a sort of combining and emerging and then they all come together So you throw it all together into one big box Or bucket and come up with a calculation And then you determine because if they they withheld they could over withhold they took too much But then at the same time, you know, no one withheld on this one and you owe tax here So you just pour this into that and cover it Um, it can happen too with a spouse. Well, you're getting scholarship and That tax is increasing and nobody's paying your tax Well, if your spouse is making money and they're over withholding that extra tax covers the tax Or you should have been paying so you're good So that's how it works Thanks, and I know you'll be answering some of these questions as we go along Okay, so now we're up to uh, probably one of my More realistic cartoons. Um, but anyway, um Audits aren't that bad by the way, so here's the best part So now you're single and you say I gotta I get a I've done the qualified non qualified And I got a certain amount of non qualified $30,000 or something. That's all taxable income. Oh my god at 10% That's $3,000. Well, that's the gross income and again Sam mentioned interest on cds and other things you throw it all in And you check and see what your number is, but then you get some deductions We talked about the hundred dollar deduction. Let's talk about specific deductions There's a standard deduction you get for just breathing So if you are single you get $13,850 for the 2023 year And you can see it goes up if you're married and certainly if you're head of household That's the amount you get. So that's a deduction that you get right away Um, and that will apply for most students Um, we're going to talk about this just because people talk about it But again, this is somewhat not very relevant at all recently after they pass a tax cuts jobs act But you do need to know whether you are a dependent or not And it'll come up from time to time your parents Who would be the people to claim you as a dependent would like it because there is a credit they get But you guys are older. They wouldn't be entitled to it. So it's not something Your parents are not going to want to claim you as a dependent Um, and they don't call it independent by the way. They just call it not dependent. So Um, but in most of the what we've seen the grad students, they don't they don't meet the dependency tests You either have to be a qualifying child, which in many cases you may meet, but if you're uh over the if you're 24 Or more Anytime during the year, you're not going to be a dependent qualifying child And you won't be a qualifying relative if you're earning more than $4,700 And that's gross income. So that can include your quality your non-qualified scholarships And that's again one of the cases. So you're probably not going to be a dependent I mentioned it because it still plays into state taxes and you'll hear it from time to time on certain tax benefits you get at the fed level Um, so now we're into case studies. So there's some of the grammar rules and now we're into applying We're into the more fun part of case studies There were grad students whose single receives 14,250 of cash Uh in 23 The u.s. Citizen which we talked about and this person's 23 years of age Work solely and has nothing no other income to declare but for the scholarship money of 14,250 And so what's it look like? Well, here's what a return looks like 1040, uh, you fill out all your names. There's some security number Single married that's very important because that determines your tax rate Um, then it gets down here. What's your standard deduction? You can either be a dependent Or uh, your spouse is a dependent or Uh, someone can claim you and so forth. A lot of people I you can leave this blank as well Um, the thing is if you're dependent or not a dependent the calculation on this case study Is the very same so I just want to let you know Um, it's 14 250 you put it on line one by the way with the w2 Uh, it tells you to add it together you take the 13 8 50 you have 400 dollars worth of tax malinko that's it You had 14 250 you get to subtract 13 8 50 and you have just nothing but 400 and when you look at that at 10 that comes up to Uh, 41 dollars And now you think oh, you said I have to pay this in well and we'll talk about it But if it's a thousand dollars or less You don't have to do a quarterly estimated tax payment. You can actually wait until next April The irs is not excited about 41 dollars What they do is when they get your money they invest it and they earn interest and um That's why you have to pay in as you go They don't want to don't they don't want you to wait you costing them interest Well, let's just put it this way if you you know, 41 dollars It's worth more. It's cost more on administrative effort than it is any interest they're going to earn on that So you can keep your money at least until April 15. Isn't that nice of them? So anyway, that's that now sam got a question Yes, speaking of paying as we go Is are there penalties for not doing so if let's say you were partially paid as a gsra and taxes are withheld But then you were partially paid via a fellowship So taxes were not withheld and but you didn't pay your quarterly taxes and do you end up owing more taxes than what were withheld So, um, you're allowed to actually go into the april 15th next year period that reconciliation period and basically Oh about 10% as long as you paid in 90 percent During the the calendar year 23 when you go to do your taxes for 23 april 15th And you sit down and look at it as long as you paid in 90 percent. You're probably not going to get hit with underpayment penalty Um, and we'll talk about this when we get to the quarterly's but if you everything the irs does is there Four parent management skills. They penalize everything. So if it's beyond the 10 percent And you are uh, you're only withheld 80 percent Then yeah, there'll be a there'll be a penalty and they will be and we can talk more about that when we get to the estimated But yes, yes, you have to worry about that and that's that is how they incentivize people with pain. So tell us I'm the son and grandson of dentist. So I naturally You know tax is intuitive to me, but uh, uh, just makes sense um Now here's uh, oh, I'm sorry another case study. I guess we should read it first We have a postdoc student. They have a grand award of $15,000 to conduct research at university of y It's just a cash stipend Then we have a and a person's a u.s citizen the expenses are primarily for rent and other living expenses Alternatively same facts, but the grad student receives a grant award of $25,000 They take 9 000 of it and they pay tuition They have a thousand they spend on books and then the rest of the 15 is for rent and other living expenses So basically you're looking at 25 less 9 less 1 is 15. That's what you have left over now This is very interesting. So how does it look on the tax return? um Now that's not actually how we doing it the university. We wouldn't give you the 25 We would probably just give you a 10 and you'd spend the one and then you'd have the the nine left Or you would take the nine for tuition and we would give you the uh The rest and then you'd spend it and you'd spend a thousand for books and so forth and then 15 for Rental so that's basically how it would work But uh, you report it the same. It's both $15,000 So the 15 Goes online one not a problem here It's the 15 that goes on you do this math on your own. You don't include it on the tax return. They don't want to see it Keep it in your records and when they come to audit you if they do you're going to need that because you want to prove that By the way, they don't audit you like tomorrow. They audit you like two years and 360 days later Just before the statute limitations goes by so you want to make sure you have documentation that documentation is important because if I If you're students the way I knew students in my day, you guys are moving around a lot And if you're moving around a lot, you're always, you know losing things The easiest thing to lose is your tax documentation. So put it in a special box So you have it you're good put in a special file whatever it is and you're okay Um, but when you go to report on a return all the IRS wants to know is what's your taxable income If we don't like it or we don't agree or we don't believe you we will come to you and find out So that's basically how it works. Just pay us what you owe 15 less the three 13 850 which we talked about earlier Put you in the situation of oh, I'm sorry taxable income of a thousand 150 and That comes out to a hundred and fourteen hundred and fifteen dollars again, not too bad It's under the thousand so to go back to that estimated tax payment question I I wouldn't have to pay this in in the 23 year same I could wait until April 15th of 24 and then pay it because it's under a thousand dollars with no penalties Because I'm too small. They don't care about me. Just fine. I'm kind of being Anonymous with the IRS is a good thing. So that's how it works. So that's the estimated tax payments Um, or I'm sorry, that's the overall that's how the we're moving to estimate that's the overall calculation on a tax return And that's the two case studies again. It really doesn't matter if you're dependent or not And uh, it really doesn't matter How your accounting works? Uh, it's really what they want on your return You keep the accounting on your own And if they come to you, then you'll need it. But that's that and uh, they can they may come to you. I doubt it Uh, they would come to us the only chances you're doubled up Your chances of being on it there's double because they can come to us and ask us What you've been doing and part of why we do this presentation is tell the IRS we we talk to our students about this they know About the rules and they feel better about it. So and it's my job to convince them to not come after you folks That's my job and uh We'll see what happens so far they have been in and so far they've asked and so far they have not gone after any more students So so the presentation must be boring enough. But anyway, it seems to be working So now, oh, I'm sorry. I got the joke here. I want to show that Um, the jokes are very important when my kids were young and they were bad My wife and I would make them read my outlines and uh, we they're very good kids to this day So I just want you to know it's a great parenting tool. Um, and uh The jokes of my one son, you know, you know, these jokes that they're not they're not funny Oh, no, in fact, they get worse as you go. So and it's the presentation. It's not the joke I could put the funniest joke at the end. It's still not funny. So I just want you to know That's how it works the nature of jokes and tax humor Um, if you have to do estimated taxes Now you have to sit down and that's some of the questions we had earlier. I'm a gsra I earn $10,000 I have a scholarship and they gave me cash stipends, which I didn't use for any of the curriculum or anything It's $10,000. I have $20,000 worth of tax Well, we know the flat rate is uh, 10% up to 11,000 and then at 9,000 It's a 12% so somewhere in there. You're gonna be just under 12% tax on $20,000. I gotta pay that in Okay, but remember now you got that standard deduction of 13 850. That's not so bad. So that brings you down So now you start doing the math and you're all right. Do I owe anything? Well, what did you withhold? A lot of times the withholding covers Whatever you owe in total And that's what you want to look at and again that can be from you having another job It could be you from having a spouse who works and and collect so there's all kinds of ways to have it But that's the estimated tax payments now If you the calculation or the computation I just went through that's this there's a worksheet We have publications at the very end of the Outline and one of those publications is estimated taxes and there's a worksheet in that and this is the one for your 2024 year If you say you think you're gonna make 28 600 you just know what the number is now It could be 20,000 in scholarships and 8,000 in cap gain and 600 in interest. Whatever you think you're gonna have you toss it in there You get your um deduction now next year it'll be 14 6 it increases So you're talking about uh 14 40 14 6 which leaves you with $14,000 worth of tax bilingual That's not bad, you know just under 30 and you're now down just just under 15 You take your tax rate on it. It's more than 10 percent Because we talked about how that that you're single here. So anything over 11,000 is going to be at a higher rate than 10 But it's 14 48 and Sam we talked about 30 and 90 percent. There it is a line 12 a you just have to pay in 1303 1003 for the current year during the current year and The difference you can pay in later On april 15th and if you break it down by quarter, it's 326 Now that would mean that you got the amounts paid ratably a lot of times we get them paid twice a year So you're really doing two payments, right? You know and and the dates we talked about the dates. Sorry You could get paid in July 1st. Well, that would probably be a september 15th calculation and if you got july 1st and December 31st the next one could be a january 15th So it all depends where you want to make your payment now you want to do that, but bottom line is That's how this works. You also have state taxes and they have estimated taxes as well, but It's the fed government that you'll get notices from it's the fed the fed government works pretty hard on making sure you're paying in your Taxes ratably you keep in mind it's real simple because if you get back to the end of the year And you owe 1400 dollars and 1448 and you didn't pay anything. It's very simple They know they know it's in excess of a thousand dollars And they just pull up the 448 and they say it's taxable. It's very simple. So that's how it works So that's your that is your situation. Here's what here's how it looks like when you're going to make the payments You can do electronically now It's very much the same, but you got to put all your information on there and then you send it in The IRS is good enough to make sure by the way, they're really super Service friendly when it comes to making sure you have to make your payments. So here you are That when you're going to make payments to them They give you a little worksheet you can fill out and go through it and put everything in on it You need so you can you know go out that night enjoy yourself come in the next day and go Oh, yeah, I remember now. I got to make that payment and you're good That's how it works. So quarterly estimated tax payments is the concept is you need to pay it during the year Pay as you go And you need to calculate it. It's not that bad. Once you do some high level stuff I like this worksheet. It does a nice job of being able to explain what it is But some people like to go back and just fill out the old tax return itself and see what comes up Each quarter you can do that and then you divide it by floor. However, you want to do it It's up to you And to do keep in mind whatever you put in have already paid. That's a credit. That's a credit to you It's a with you. It's as if there's been with hold on. It's already a payment. So you're good So same at this point. Let me just do penalties and I'll turn it over So again, we mentioned penalties and that's what this is saying everything's done by penalties You pay it at least 90 percent. You're okay You can pay in 100 percent of last year, but a lot of times with students It's the same or it might be more. So that's not necessarily gonna necessarily help And you basically want to make sure that you view it on an annualized basis. That's really what you want to do So you get paid 300 grand I'm sorry 30,000 grand goodness 30,000 dollars in January and then you don't get anything for the rest of the year Then you just want to annualize that throughout the year And so for them and then the exception again, we mentioned that's that thousand dollars. That's really helpful. So Now at that point we're going to get into some of the multi-state issues, which really can be a full half hour So I want to turn it back to you sam for any kind of questions anyone has Yes, thank you. So somebody asked regarding paying quarterly taxes if How much you made and how much you paid in taxes the previous year does that is that related to it? Yeah, actually, there's um when you go to do it and you go this year i o 20 20 uh 2000 dollars and last year I only owed 1500 When I go to do my coalition made tax payments for this year, I only have to pay in 100 of last years I don't have to pay in 1500 Whereas if I took the 90 of 2000 I thought paying 1800 So I'm saving myself 300 up until April 15th next year, you know, I still have to pay in the 2000 But it's when you have to pay it in so how much do I have to pay in during the year? And how much can I hold and wait until April 15th of the next year? It's a real tax planning tool for certain people and I'll give you a quick story There was a guy who was a programmer and it was in military munitions and There was a war at the time going on and This guy sari was about 200 thousand dollars a year. He's a pretty good guy Then he made this thing and the government bought it and he made uh about 150 million dollars. I think in one year. So he went from 200 thousand dollars to 150 million. It's a lot of money And uh and that year all we had him do was pay in what he paid in the year before Sam so he didn't have to pay it anymore yet So all that extra money he should have been paying in if you went by the 90 percent rule He didn't have to pay it and he got to earn a lot of interest on it. So So it worked out well that is a good example But what you do is you invest that money and so forth you hang on it um With students it doesn't tend to work because our sari or our income doesn't jump that much from year to year You know that kind of thing so last year is pretty much this year So it's almost better to use this year because you only have to do 90 percent of this year We if you're going to rely on last year's exception You have to pay it 100 percent doing to me that kind of thing that may be more than 90 percent of this year. That's the idea Gotcha, and If you're paying quarterly, do you have to file something or can you just pay? Yeah, the problem is you don't ever want to just pay Uh particularly the government because they just take so you want to have a receipt and that's what this is So you fill this out and you send it in you send it on paper If you do electronically keep a copy. I will tell you many times They will never question what your w2 is. Here's your income. We got that. We don't see any withholdings I paid in quarterly estimated tax payments. Sorry. We don't see it. You go here. It is and they go. Oh that Yes, yes. Yes. So it's one of those. I'm not kidding you. It's very frustrating You definitely want to keep any receipt returned receipts is very important too If you feel you're gonna have trouble so a lot of people, you know, they do their taxes in january So you're not so worried, but some people do it like april 14th If you're gonna wait that late and you owe money, you're gonna want to do return receipt mailings just to prove it is So anyway, there's a lot. There's a lot there. So that's a lot of good questions, but um That's the receipt. That's what you need. Go ahead. Um sam. I'm sorry Oh, you're great. Sorry. Just just doing my back. Um Someone asked can you write off the interest on prior student loans? um You can get uh, there's a certain rule of student loans and they taken away a lot of it It's also an itemized deduction. We didn't talk about itemized deductions, but you know, you get a standard deduction to 138 50 Well, you know, if you actually have a house and mortgage interest and so forth and so on and it's high enough You can do itemized deductions, which is greater if it's greater than 138 50 um But if it's not you won't you won't be able to take the the deduction You won't want to take the deduction you'll want to take the larger which is the standard Rather than the itemized. So for instance, uh, you know, I'm older now more Sedentary years. So my wife and I we've actually paid for the house so we don't have much mortgage But we have real estate property taxes here to play and we have other kind of bills and so forth that you can get on itemized expenses But it doesn't come anywhere near the 13,850 and being married jointly, you know at 26,000 I'm I'm fine. You know 27,000 dollars That's a lot of money sam You know that kind of thing that you could get his itemized expenses So I think we take the standard deduction because it's so high. Um So you have to ask yourself the question Would I rather do itemized or or standard if the standards higher forget the itemized and what you just mentioned the interest reduction for students Loans, that's an itemized expense. So, um, you may be incurring it But you won't you won't want to take the deduction because you'll you'll want what's best for you That's uh, erin has a question All right, erin Yes, yeah, sorry. I'm I'm right here So Basically when I started school here, I didn't realize I had to do quarterly payments So what do you mean by the 100% thing and like how screwed am I? Ah, so, uh, it depends when your first payment was um If it was september 1st that would fall into the january 15th payment The january 15th lateness Um, as soon as you just make the payment as soon as you can that's how you undo because it it ticks for every day that it's late So the less days the better. Um, and if it's the september 1st, you can go all the way to, um, january 15th And that's when they would expect that that's when the clock will start ticking for the for the lateness And then it's between january 15th and now you're only within two months You get your return in then you're only going to have to be charged Uh, the the under reported penalty of for two months. You've minimized Okay, I still don't understand what you mean by 100 of the prior year Okay, so so that's that's the that's the how the penalty works, which is on a lateness So if you've got uh for 23, you look at your tax liability and if you say, oh my goodness, it's it's Uh, I owe I owe $2,500 and you could look at last year's and it was just a thousand dollars Well, 1500 then all you have to pay in for the 23 year was 1500 It's a hundred percent Whereas you could pay in 90 percent of the current year Which was 2,500 Uh, and you could do 90 percent of that or a hundred percent of the 1500 from the prior year. That's how that works there Is that me? So basically assuming I file my 2023 return on time by April 15, then there shouldn't be a penalty Well, well, uh, your file it is there going to be a gap or you're going to pay anything? I presume so because taxes were not withheld for fellowship students Okay, so if so if Well, but it depends if you have other withholdings that can cover the amount of the scholarship Because it's all one bucket here and and you've got it where you can cover it then you should be okay So it all depends how much you how much Withholding if you've had another where you were gsra or anything else during the year Uh, yes, I was at another place before that did withhold taxes But I'm not sure, you know, if that's going to cover, you know, the taxes the taxes I owe on my scholarship Good. Well, this is a good point. So there's a couple things if the amount they withheld for the 23 year Is equal to or greater than what you owed a hundred percent of in the 22 year Then they they covered your prior year because you can make it under two ways Either your hundred percent of prior year was covered Or 90 of the current year was covered and those withholdings could do one or the other So you have to go back and check out how much withholdings are go back and check what your tax liability was for 22 And if the withholdings for 23 are greater than the tax liability for 22, you shouldn't have a penalty If the tax liability for 23 If you take 90 of the tax liability and it's less than the withholdings that they did for the 23 year You're not going to have a tax liability or tax penalty. Sorry So you won't have an underpayment penalty. So it depends Uh, it depends how much those withholdings are but they believe or not a lot of times when you fill out your w4 If you put zero in as your number, that means there's a least amount of withholdings Which means they're going to take the most out that they can that actually can be a lot of money and be very helpful to Thank you. Ed. Johnny. Can you Let us know your question So my question is um as uh, as I think most audience are we are either gsi or gsra's receiving payment from school the stipend from the school Do we need to do this? Uh, quarterly uh, tax reporting or can we wait until like every year? So again, that's a great question. And I think it would it looks like if the if you're gsri or gsra The university of michigan is withholding tax on your back And if you call up a row and ask how much your withholding is to date, they'll tell you what that is And that means that tax is being paid on your behalf How much that tax can cover on your taxable income? Because really it's meant to cover a lot of what you're making is a gsra Um, you can over withhold you can ask them to over withhold and that will cover some of the scholarships But in general you might have to still come up with some money to cover the scholarships Because what they're withholding is only going to be tied really to what they consider to be taxable So all right, let's see and the scholarships towards For instance like tuition waived Is that what you mean by the scholarships that They would consider taxable even though you are a gsa and are receiving like a w2 Yeah, so if you're a gsra, your tuition is waived not taxed But we're paying you wages for being a gsra Those wages just like to paying me is going to be subject to taxable income I don't think they're going to be subject to feika, but they'll be subject to taxable income and for that reason sam they withhold and That's the good news. You got something's been withheld on your behalf And the more that the employer withholds the less you have to make of a core least made tax On your scholarship Okay, thank you. Ja, man. This will be the last question young because we want to make sure we get everything from ed I just want to ask if we do own penalty because we didn't Withhold or we pay estimated taxes. How does that work? Yeah, so so one you have to check and see if you paid enough in And we were talking about how that can happen in many different ways, but if not um, there's a a penalty a statement to your your software will probably want you to Complete which is a 2210 form 2210 and it'll compute the underpayment penalty That form has probably been more difficult than any the rest of the tax return I just want you to know so and that'll certainly be punishment enough to make sure you never fall into an underpayment penalty situation again Um, but it's on the thing the software can help you do it Um, if the irs assesses it if you don't do it the irs will assess it But they take the worst-case scenario and it's usually more There the penalty they're charging you is more than the actual penalty you have Um, so just to let you know Did I answer your question? Yes All right, so i'm gonna move on. Uh, thanks sam for helping me manage this move on into the uh, the state issue Um, and I think everybody finds this very funny. Um And I think at this point in time you might feel that because it's uh, it's and we're about to go into another area That's just as much fun. Uh, and you'll have to bear with me State income tax just like the federal the internal remnant code. They have some Specific requirements and here you state filing requirement basically for this You get taxed. I don't know why we had a tea party. You get taxed Twice on the same income the fed will tax you and the state will tax you um, and um So every U. S. Citizen or resident alien will file a fed return and a state return More importantly, you might have come from another state at some time during the year You might have two states possibly three state returns to file for the one taxable year Now a lot of this turns on uh, uh domicile Where's your intent to reside and To some degree we can avoid double taxation So there's there's a situation where you move uh part year, you know So you move from virginia and you move to michigan and you change your residency Well, you have two returns, but only the first part to virginia and then the second part to michigan You can also have where you come to michigan is a non-resident You keep your residency at your home state And you come to michigan well then you might have a return for your home state As well as michigan and you have to allocate between the two because you have a residence All year long in california, but you're spending a good portion of your time in michigan and you have Uh two states wanting the same dollar to tax the same dollar. So that's usually how it works and we'll talk about that as we go And and the idea is to avoid double taxation as we go and uh So the first thing I want to do is walk you through a michigan return It uh, the nice thing about it is again, there are certain states without a tax regime. So if you're from florida Tennessee Texas for individuals nevada. They don't have tax rates tax. I think washington. They don't have an income tax Um, that's very important because that means if you're moving to michigan You don't want to change your residency because you don't have to pay anything in your home state And then all you pay to michigan Just like the non-resident is on the michigan sourced income Not worldwide And that's what you want to do and we'll see examples of that If you come from a state that has a higher tax rate than michigan You're going to want to change your residency to michigan because we tax you at a lower rate And if you stay with the state with the higher rate, you'll pay some state taxes to michigan But you'll pay the difference to your home state. That's generally the rule And the the whole test turns on intent Where do you intend to resign and there's certain Primary source documents that the iris is going to look at and it's going to look at your driver's license voter registration Your lease arrangement, you know, what proves to them where you are you keep your driver's registration in california Yeah, you uh have bank accounts in california You vote in california You're going to look like you're a california resident and you say you're a california resident They're going to believe you problem is california has a much higher tax bracket than michigan You're going to pay extra money to california during the time that you're in michigan if you hadn't changed your domicile Now if you change your residency, it doesn't do anything for your nath far or anything like that It's just for tax purposes Nothing else. So it doesn't make a statement for any other Regulation or any other kind of grant aid or anything like that Um, you can also change back next year. It's not necessarily a problem So now we're going to look at the michigan state filing requirements. So if you're in michigan You have to file a state return. What's interesting with michigan is there's a homestead exemption Uh, this is very important for a lot of folks who who file for this do keep in mind uh, you have to Be located in michigan, but more importantly you have to be a michigan resident for at least six months. That's very important Um, it what's nice is it it includes rent Normally you have to be a homeowner. Well, this is just renting because they the state of michigan believes that the price of the Taxes are in the rent and if you own your own home Then basically there's a tax value here, but it exceeds this then, you know, you're not going to get much But that would be perfect for students who rent, you know, you folks aren't renting the taj mahaj So you're doing very well where you are and things are good. So here we are um Case study number one. You're a student eight thousand twenty five dollars non-qualified scholarships Uh, no other income. She's flat here. You're not claimed as a dependent again a non dependent And you're a resident of michigan. So you qualify for the homestead now Remember we talked about credits and refundable credits and this is going to come back to us This is jane doe and she's a resident. She has, uh 5400 dollars of an exemption again just for a standard deduction just for breathing The 8000 less the 54 gives us two six two five at a 4.05 percent tax rate. It's a flat rate is 106 dollars 106 dollars and then we come down to the credit And it's 425 and when you finish the return we get 319 dollars back You get money back from the state because you rented property as a home Oh, no as a student in an apartment building. That's good news Here's how the rest of the form works a lot of it's based on what your rent is It's based on what your income is because if you're really wealthy, they're not going to give it to you They do certain percentage tests on it. Uh, so here it's 23 percent You know where they come up with these numbers is pretty interesting But as you come by they come up with a number and you subtract from 709 257 you get 425 And that's what you bring back over here The 425 and you subtract that from your tax and the difference is the 319 Bottom line is it's a pretty squirrely way It is a long-winded way of coming up with a none with a refundable credit But basically the homestead exemption is a refundable credit something to look into for students That's the good news. That's the michigan return. Now, if you're not a resident of michigan You have two choices. You can either be a part-year resident in your home state and change your residency to michigan two returns and one's completed A tax returns completed with just the income that you earned while in that state And then the rest of it the michigan return is just for the income you earned in michigan Or you keep your residency in your Home state and you now say you're a non resident while you're in michigan Now the part-year we won't go into is in a case study because it's just it's just what it is It's just cut in half. It's two returns and then the next year you're resident of michigan So you just file the one return if you want to keep as a resident of your home state You're going to file in michigan this year and most likely next year in a couple of the years You're here as a non resident and again that may work if you're in if you're from a home state that has a low or no tax jurisdiction for income taxes But if you if you're not aware of that you can't have an issue. That's what the case study will show here We have a post doc who's making $50,000 not bad Now they also have interest so it's $50,070 goes on the return. They're from south carolina and they They don't claim they're not claimed as independent by anyone else Um, they have to file returns in michigan and south carolina clearly if you're going to keep the Michigan is a non resident you have to if you're a u.s. citizen or resident alien You have to be a citizen of some state in which case in in this case in south carolina So you're going to have two returns now. You'll notice the rates There's a graduated rate in south carolina from three to six point five Whereas michigan it's a flat four so i'm not sure I'm not sure which is better. He mentioned if it's a higher tax bracket But how's it work? Well, I can tell you how this works Same number. Well in this case you get your 5400 now you got $50,070. That's the total income you earn You subtract out the 54 You also subtract out the $70 remember now you're only taxed on the michigan earned income. That was the grant The $70 goes to south carolina because that was interest They didn't earn that michigan you earned that where your home state was So you're only taxed on the 50 000 here in michigan And when you subtract out the 5400 you the tax on 4.05 percent on 44 600 is just over $1,800 that's all you got to pay not bad for $50,000 and you go. Okay. Well, what do I owe for? South carolina well keep in mind if you change the residency it would be on $50,070 And 70 is the only thing you didn't get taxed on so if you taxed the extra 70 on 4 percent you're talking about another three dollars So it would have been like 1810 instead of 1806 or 1809 somewhere in there So keep in mind Should you have just changed the residency or not we're going to find out So here you go through the rest of the return the 1806 That's what you end up with that you oh fine. It's not a problem Now you're in michigan you got to figure out if you're entitled to the full 5400 and since so much income Like 99 some percent of it is in michigan you get the full 5400 And then there's the 70 dollars that you get to deduct so there's all these extra forms you have to fill out But you're seeing how the breakout is this is south carolina for 70 and this is michigan for 50 And you're only just 1806 here probably 1810 if you brought it all into this column, but you did you are loyal to south carolina This is the uh, the here it is your single and this is the uh page one information form One You're one exemption And here you are with the numbers 50 70 50 70 look you get to Subtract out 4610 now we were 5400 michigan. So you're at 45 460 you owe 22 39 on 70 dollars Because you already paid on the 50 000 in michigan it just happened to be at a lower rate So because the rate increased From 3 up to 6 it's more much more than our 4 in which case you're going to pay a lot more and Basically you're paying a total of 2239 now they give you the credit You paid the 1806 so you don't have to pay an additional you don't have to pay the full 2200 You subtract out the 1806, but you do have to pay four hundred and thirty three dollars On 70 dollars of interest if you changed your residency you just saved Well, you would have paid an extra three so you would have paid four hundred and thirty dollars So that's how it works on the state piece and that's just something we want to show you so you're aware of that At that financial advantage again, you know changing your residency is a personal decision. It's up to you and it is based on intent And you can do what you like the michigan website is really particular about this So you might want to read through it, but they're highly conservative Part of it is there's a lot of students that this these law is advantage and they really don't like that So there's a lot of issues there But I did just want to make sure you're aware of that. This is the last page with the publications we talked about This is probably the most helpful right here and that's why white and the white block and Very thorough here. These two are helpful to look at they're all written by the irs for the irs But just the same I find them very helpful So anyway along those lines at this point sam i'm going to stop and ask for questions Thanks, ed. Okay, so our international students Let's say in their first year here considered residents of michigan Yes, I think so I think uh Arguably, uh, you're uh, if I was a I don't even know if I'd have to file a state return theoretically because I'm non-resident but I am going to be taxed on my My michigan sourced income here for sure So in the example, we just had 50 000 of it. Maybe not the 70 but the 50 000 if you're a non-resident alien The state of michigan doesn't have any more jurisdiction than the us to tax your Income that you earn in your own country Because you're still a non-resident and the home country gets to decide how they want to tax you You know that kind of thing so you will at the file a state return As a non-resident alien, but you're not going to be taxed on your worldwide income Just on the income you earned while you were in michigan So someone who receives a 10 42 as a resident alien Yeah, um, it's considered taxable michigan state of Taxable towards the state of michigan. Yeah, sure. Now both again the fed and state are going to tax you on the same dollar And uh, so the fed's going to tax you and then you're going to have to fill out a state return as well But it's just for the state of michigan and it's just the amount of the 10 42 s It's not if you earned interest or had cap gain or rental income or anything else That you earned out of the country or out of the state of michigan. They don't have any access to it. So any jurisdiction to so Okay, thank you If someone's Parents are in another country and they support their tuition and they send their tuition as a gift to their bank account Do they report that for taxes? Yeah, so uh gifts are not considered to be there's a gift tax, but um, and it's a very high standard I think it even covers tuition And there is a And there's no tax on loans It's not income tax alone because you're going to pay it back. There's no accretion of wealth I got the money today, but tomorrow I got to pay it back and with a gift it comes from someone's generosity Um, that's not anything I earned and you know, though an accretion of wealth is considered to be a gift Uh, don't it's of intent and it and there's not going to be any income tax on it Although there could be a gift tax to the gift Okay, thank you. So if someone is a u.s. Citizen and they're moving abroad Is it possible to remain a non resident of the state of michigan? um So if you're a u.s. Citizen You are a u.s. Citizen and and you have a state that you are a citizen of Um, and you can't relinquish that So, uh, and you'll be taxed on your worldwide income So if you're from michigan born, michigan bred and you go out of the country You're still a michigan citizen, uh, just like you're a u.s. Citizen and Anything you make if you sell the art in ireland, you're gonna have to pay Tax to the u.s. On your income tax and to michigan on that tax return So if I if i'm answering the question correctly Thank you. I I think so okay, okay If someone's tuition fee is sponsored by a u.s. Taxpayer whose visa status is h1b And they're asking if they want if that person the taxpayer who's sponsoring the tuition wants to file As a tax return to the u.s. Taxpayer If they wanted to file this as part of their taxes Can a 1098 tax document be generated in their name Uh, so run that by me again The taxpayer who's sponsoring the tuition wants to file As part of their taxes Can the 1098 form be generated in their name? Yeah, I don't think the 1098 t can but keep in mind It's not the t it's the 88 63 that yet you report On your tax return. So it would be whether you could take it on the 88 63 And i'm thinking from a You know how the law works. I not sure you get to take Uh, not sure how that works. I don't know if you get to take the because is the There's a couple possible obstacles here, um, you know parents can pay for someone's education and uh, and it's a 1098 t And uh, the the t comes out to the student But the parent can sit back and say why I paid for it and so forth But it really stays with the dependent and if the parent claims it's a dependent the parent gets it So you see it follows the dependency and that's that that one test we went through Um, but I don't know how that works with a foreign national Particularly during nra because I don't know if that works first. They have to be I don't know how it works So that would be I haven't come across that before so I'd have to check and see through that But that may that may work just the same and it may not it depends Part of it is the foreign nationals aren't entitled to the tuition deduction the non-resident aliens aren't allowed to take it You get the form the only reason our non-resident aliens get the tax form is because our people in the student services Don't want to have to go through the pile of 1098 t's and pull out their forms Uh, but they're not entitled to it. So I don't because they're not entitled to it I don't think the individual who's sponsoring would be entitled to it either Sam So that's the idea. That's my thought but that's just you know, I haven't I haven't researched that but The the tenants of the of the principals are out there and I don't think that I don't think you can uh I don't think you'd be able to get that so that's my thought Thank you. And do you pay quarterly taxes to the state or is it just federal? You can do the state. Yes. Uh, I well I should tell you I've never seen the state come back and say anything to anyone I think they're just happy to get paid But if you're going to do it to the fed it's always nice to do it to the state I can tell you if you do it the state on a regular basis I find the state's completely different than the IRS the very personally you get to know them They'll help you they'll walk you through things and if they see that you're very compliant diligent They'll do they'll help you. I mean they will actually help you make things go away explain things to you and so forth They're very helpful. It's very kind. They're very kind and it's very nice Wonderful our Roth our IRA contributions tax deductible. No But they in what they do is because you didn't take a deduction for them going in They accrue tax-free the entire time. So when they come out, they're not taxed at all Whereas with your traditional IRA you take a deduction. It's a small amount And whatever you deduct that's got to come out when it comes out. It's got to be taxed. So that's the idea So it's a front end back end kind of thing and Roth iris You know, it's it's one of those things where it's painful on the front end But you really appreciate on the back end because it's tax free Okay So someone says that they're confused about glacier software They don't know the form that they need to fill out as an international student because they only see 1042 sw to 1099 and others, but they don't find 88 43 or 1040 in our among the options So software questions, obviously from my gray hair is clear that I will defer to someone pretty much at all times But I think in this case the international operations center would probably be really helpful Um, they they work with it regularly. I've not worked with glacier I'm aware of it and I know the rules but at a very far high level and I don't really get the chance to work with software So I apologize No need for apologies. You're more than knowledgeable if someone Does the money that they make from fellowship Count towards the total household resources for the michigan homestead tax Uh, good question Um, so again, uh, yeah, I I think you want to want to look at that closely Um, I think that when we looked at it, it's a much broader definition You look on the web for the irs. They'll have a or sorry for the state of michigan. They have a pretty good Handle on that and they talk about it. I don't believe they talk about fellowships directly But they'll give you a feel for the fact that it it should be included But my sense is read through it. I don't want to uh Uh I'm certainly open to any interpretations. You have let's put it that way. So They're not very clear about it or they are to something really not that clear And a lot of clever people out there can take a position which uh is why we have court cases, right? So I leave I leave that to you How do We treat the tax treaty on 1040 since They know that even resident aliens still applies the u.s. China tax treaty for $5,000 following the tax treaty article 20c Yeah, um, that's a pretty specific question. I'd probably have to pull up the treaty to read that so Sorry And we have a hand raised Shag hi, okay, thank you. Um, hi. Do you have my voice? Yes, I can hear you I'm sorry. I wanted to ask about the state tax I am a first-year international student with f1 visa and we do not pay taxes in my country So I Kind of was not sure If I should pay anything Except the federal tax or not Because I I can see something called w for form on my profile for the state tax Can you can you help me with that a little? So is it a w2 or w4? I have w2, but I also can see something called w for Yeah, but w4 is typically something that you don't we don't share with the irs iris to share with us That's usually between you and your employer and you tell your employer here's how much I want to withhold or something like that um The w2 is the tax form that we share with the irs and at the very bottom of that Throughout most of its fed taxes at the very bottom it says state and city local taxes So the w2 is probably more helpful. Do they have anything in the state column for w2? at the very bottom um I'm not Maybe I should check again, but like so if I have understood Correctly, I do not have to pay state tax So my thought is if you're a non-resident alien, you're going to want to pay your fed tax and your state tax on your us sourced income And the state taxes would be michigan if you were michigan when you got your scholarship The taxable piece of the scholarship if it's not taxable. You don't owe anybody anything. Oh, okay. Okay. Thank you so much good As someone asks that says they're an f1 visa student and they don't have any us income Do they still have to file their taxes using the 88 63 form? so the 88 63 if I remember correctly that is a form that we file that says i'm providing personal service or services in in the us and um Whether it should or shouldn't be subject to a taxation because of my treaty And that's something that you're really going to want to talk to payroll about because that's who the form is filed with It's not filed with the irs. It's filed with our payroll office and they determine how they want to Classify the classify the income and then treat it if it's taxable. So my sense is anything with the 88 63 would probably go through Vendors do the w8 Be Benny and other things like that but 88 60 is an old form that we use for non-resident alien individuals Particularly providing working here at the university So my sense is yeah, I would talk to payroll about that because they're going to have your information right in front of you And they can answer a lot of questions right there for you Thanks, ed. Okay two more questions. Do you have any helpful software resources for filing state taxes? That's a great question. So I think the best resource is each other I mean a lot of you have the same situation and uh, you talk to somebody say, how are you doing it? And they say here's where I'm coming up and you say did you pay coalesce many taxes? Yes, how much? You know, they tell you you go. I'm not paying any of that. Why here's why and maybe one's married And maybe one's not you know and so forth, but the idea is you get a feel from each other That's a best way to correct yourself Check on yourself see what's going on with what you know reviewing your own information But you know, I found too you just wake up one morning go to Barnes and Noble sit down at that You know pull up a master tax guide grab a coffee and just read through some of that stuff and The way about taxes. It's a ripple effect. So the first time you really go I don't think I get this and then you really again you I think I think I understand a little more And by the third time you're there and it and that's why when you run into somebody, you know And you talk to them you you're picking it up again. That's another ripple. So the idea is it's very helpful To socialize what you can with people you trust because a lot of this is confidential information and I appreciate that but We use uh There's a couple of softwares Um, boy, there's a couple of them. I think I'm thinking of um, and and they're they're all pretty reasonable and you know um, I think They're pretty good with scholarships too at this point in time So if you're doing your 1090 at and box five is greater than one they'll put the amount On your taxable income is taxable income or on page one of your tax return is taxable income And you then have to figure out if that's correct or not. So they're all they're all very good about, um Doing what they are being able to do that for you. So the softwares are pretty good. So I can't complain. I'm sorry Turn this down. So the softwares are actually pretty good. So I'm not having a problem with that. So um, but I leave that up to you as to how you want to do it. I know there's a Everybody has their own way and everybody has their own. I don't want to prejudice HR block. I think we've seen that and a couple of other things. I don't want to push one over the other But my sense is feel free to To grab anything like that, but that That's probably and talking to each other. I think is one of the good ways to go about it. So yeah, that really works out Well, I'm sorry Okay, and actually someone asked The value that you get when you subtract box five from box one on a 1090 at For your case study number one the 14 1250 income is that that value? So if I were to do that that would be in box five and then let's say in box one tuition was 10,000 and the 1485 was stipend Then the box five would be the 2485 because it'd be the tuition and the stipend just what do you mean? box five is qualified and non-qualified scholarships box one is just qualified scholarships and that's why box five if you got the full amount paid Will exceed box one because it includes both the qualified and non-qualified where box one can only include qualified and that's really the formula for what's taxable right the qualified is taxable and the Non-qualified is taxable and the qualified is non-taxable. So Um, that it does that math for you It just does it indirectly in the sense that my sense is the IRS doesn't necessarily audit from that So that's the idea Did I answer that question? Yes, um, and shijin this will be our last question because we're over time and I don't want to pick up anybody else's time Especially yours Ed Okay, so that means I can speak right sure Okay, so I only have a little bit question more. So, um, the first thing is that Do we need to pay the FICA a test for residents alien because we are still the student full-time student here um, I checked the international center website and this says even if you're getting Four credits or more than you don't need to pay that tax Yeah, so I think they're referring to the FICA tax So there's the two taxes income tax and then there's FICA The income is on your accretion of wealth and the FICA is on your earned income and if you're a gsra or Gsi or anybody along those lines Um, you're basically going to be enrolled for more than half time And if that's the case any money or earning will be subject to income tax But it won't be subject to FICA because you'll meet the student exception And a student is defined as somebody who's rolled for more than half time Um, so the good news is you won't have to pay FICA tax But you're going to have income tax on whatever they're paying you the stipend the cash stipend. Yeah Okay, so another another question is that we don't need to including any like a gift money or something from the Because I I think you mentioned before because I checked the website as it says if you're received a gift After become the resident alien and more than like a 100 thousand dollars that you need to report using like a form 3325 or something so It won't be taxed, but you have to report it so Um, well, I'm not familiar with the 3325 Looking at it from a tax perspective. If someone gives you a gift It's code section 102 will tell you I'm sorry to throw out code section, but let you know it's there Says that gifts are excluded uh, now, um, you know, they For instance, when you win the Olympic gold that can be taxable because you earned it But if someone gave you something And they give you the 20 20 thousand dollars for tuition. That's not going to be taxable income to you It's all within the same family unit. It was given with disinterest to generosity sometimes more than disinterest to generosity, but it's yours and it's to a gift So it's not going to be taxable income. Um That's trust me now they the person who gave it to you doesn't get a deduction for it. So But yeah, you're allowed to transfer money back and forth particularly among family members It happens all the time and it's not considered to be a taxable event. So it's a it's a very good question Okay, and the last question as I think I haven't mentioned before is like about the us china tax 3d 20c I already find the documents that we need so Um, and as I know that because I checked the website it says we only need to like a directly subject subtract from the Uh, the one a part income directly from our w2 Gross wages there. So Because we we do got like a five thousand dollars for the tax treaty even even though For example, I'm the resident alien right now, but it still works for for me. So so I just yeah because before I fill out the One zero four zero anar and they do have I do have a form to put the tax treaty in the box But here I don't have this form to put the box So I just want to know if I need to fill out the like a eight eight six three the form to Clean that kind of thing or What else I need to do so Yeah, so if it's a software question, I I promise you I can't help you. Um I've not a softer question. It's just the form. What kind of form I should be used or Where I need to put that like a minus five thousand dollars to get the deduction Yeah, so but that sounds but I don't know if you need to put that I don't know how you report that on so I see what you're saying it's Uh, I imagine the exception you're talking about you're talking about article 20. Is that what it is students? Yeah, it's 20 c. Yeah, I ever put in the chat Two images there Yeah, income from personal services performed in that contracting state an amount of not in excess of five thousand u.s Dollars where it's equivalent in chinese one for any taxable year Yeah, there was another image that shows why the residence annuals to apply for that. So Yeah, so my sense is you do that. How are you know? I don't think I don't not necessarily sure there is a form because all you have to do just like the one scenario We had the case study when you put on what's the return you just put on what the taxable income is and um, and if it's a situation where um Payroll is putting on a 10 42 s They're not going to look at the treaty. So you need to talk to payroll and say 20 c says the first five grand comes off And then either that's it's written that way and read that way or it's it's a threshold trust meaning once you exceed the 30 You don't get any of it just what I mean. Um, I don't and it says uh It should be exempt from tax with respect to income from personal services So it may be a threshold question. It may be a um, a um A subtraction question. So if you got 6 000, it's only 1000 And but that would be when they go to report it be on the 10 40 to west They're going to report the taxable income and that's where you bring in the treaty 20 c 20 c to explain to them the 5 000 should come off Of the 6 000 and leave it with one So it's a math that goes on a form It probably would go on the 10 40 to s as I see it If it's something we're paying you and You want that amount taken out the 86 33 you're talking about um Is a personal services form that you're doing for the university of michigan and that helps them that helps them identify the 5 000 That or you can call them and tell them but either way it's going to go on the 10 40 to west So You want to talk if you get the s and they having Take it into consideration. You call payroll and ask them. Here's what happened. Can you do this? And they may say oh, you got to fill out the 86 33 and you go fine Give it to me. I'll do it and you can do it. But it's the 10 40 to west I think that's the the main generator of this because that's the reporting The form used to report your taxable income Okay, so I just need to just show show that on the 10 40 so that that's it for now and also including the eight eight eight six three form for the For the clan that why I'm suitable for this five thousand dollars deduction, right? Yeah So but then again if you're going to do it and you have to ask is it a 10 40 or 10 40 in our And if it's an nr international operations center has that software and they have I'm I'm I'm already the residence alien. So I'm using the 10 40. Yeah. All right. All right. Um Does the treaty apply right so your residence? I think it's replied because I checked a lot from the website about this kind of thing. So All right. Yeah, okay All right. Thank you so much. Okay And we thank you greatly you have given us so much Information so much knowledge so much to take home and to apply to our very Fast approaching tax deadline. Um, thank you all for being here The recording will be processed within a few weeks and it will be sent to you along with ed slides again, although Ed slides should be in the in your inbox. You can