DECREASE IN PAY ACKNOWLEDGEMENT
I received an email last week that gave me a bit of a scare! The subject line included my name and “Pay Decrease.” When I opened the email, the attachment was titled “DECREASE IN PAY ACKNOWLEDGEMENT.” I kind of freaked out until I read the body of the email, but even after that reassurance I was pissed at the manner they let me know about this change! Even my advisor agreed that it was “unfortunately worded.”
Once I was able to process the email, I realized that they aren’t actually going to pay me less, they will just be paying me differently. (The Office, anyone? “It is not a matter of more or less – your pay is just different.”) I followed up with a reply email and it confirmed that I’m still going to be paid the standard department rate that I am now and I will get my yearly COL increase next month as usual.
I’m glad I’ve already done all this research on the differences between compensatory (W-2) and non-compensatory (1099-MISC box 3) pay. I know that in my case it doesn’t really make a difference, although it might for someone else. My advisor told me that it’s helping his funding situation at this point to switch me from one of his grants to some sort of fellowship.
1) I still have to pay income tax even though I’ll receive a 1099-MISC (or no forms whatsoever) at year-end instead of a W-2.
2) I haven’t been paying payroll taxes and I will continue to not pay payroll taxes.
3) I now cannot contribute to my Roth IRA from this portion of my income. Fellowship/1099-MISC box 3 income is not considered “earned income.” I hope this won’t turn out to matter much practically, though. I’ve already received $5,500 of earned income in 2013 so I’m solid on this year’s contribution. Even if this funding situation persisted for all of 2014 (and I hope I’ll graduate at some point during the year so it won’t), Kyle will be able to contribute to a spousal IRA for me – assuming he continues to have earned income. If I weren’t married and I were paid this way for a whole calendar year, I would be stuck not being to contribute to my Roth IRA, which would suck.
This is a perfect example of why I think the designations about what is earned and what is not earned income for grad students is, excuse my French, bullshit. (Watch out, I’m going to get worked up again like I did in the first earned income post!) While I think that most grad students work from the moment they step foot on campus, I can sort of kind of understand arguing that students taking classes, as is common in the first and second year (also when students are on training grants and not designated as earning income), means that they earning their keep less so than later on.
But me? I’m transitioning from my fifth year to my sixth year. I haven’t taken a class in years – I’ve been doing research full-time for several years. My job performance will not be one iota different from the last day of August to the first day of September so it is crazy to say that on the day before I was working and the day after I will be receiving a gift. Can I really have a “work requirement” one day that disappears the next?
Can you find my situation in this flow chart? How about this table? I’ve been thinking about this issue for years and I still haven’t found any logic behind the distinctions the university manages to draw between one PhD student and another. I think the point that sticks in my craw that the people who draw these charts seem to think that faculty members don’t need their fellowship/non-compensatory students – that the work the students do “does not provide a benefit to the faculty member.” Papers aren’t a benefit? Data and writing for grants aren’t a benefit? Adding to your list of mentored and graduated students isn’t a benefit? This is insane!
OK, off my soapbox now. Like I said, I’ll be paid the same amount and there are no immediate practical implications. The only way I will be hurt by this change is if Kyle also goes non-comp and we don’t have any earned income in 2014.
This is the entirety of the pay decrease attachment, BTW – it’s so ridiculous. I can’t believe how big they made the font.
Why do they need me to sign off on this, anyway? What exactly would happen if I failed to acknowledge that they are not paying me this way any longer?
Have you ever received an email regarding employment or pay that gave you a shock? Have you even been switch from W-2 to 1099-MISC payment? Can you parse the compensatory/non-compensatory divide?
Filed under: grad school, income · Tags: 1099-MISC, bureaucracy, compensatory, earned income, fellowship, grant, income, non-compensatory, paycheck, Roth IRA, soapbox, W-2
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That form is absolutely ridiculous! Was it take your child to work day when it was made?
In my experience (Canada, and my specific province) all graduate funding is considered scholarship, so there is no tax paid on it, but also that there isn’t any growing contribution room to a retirement fund. The only thing that was taxed was teaching which was a degree requirement. So over the last five years it looks like I made only $10000 or so – it s quite deceiving.
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Lol take your child to work day, good one. 🙂
At least all grad students are treated the same, based on what you said. Even at my university, some people are paid to be TAs, but I had to TA as a “graduation requirement” and it was not tied to my funding, so even though that really was indisputably work I did it while I was on non-comp payroll. Ugh, no sense whatsoever.
Well… not quite so equal. If your stipend/scholarship was paid by your supervisor, your boss got a break on how much you were paid and the TA requirement was considered part of your funding source. (So say you had a 25k stipend, included in that was 4k you’d make as a TA, even as a course requirement).
If you had an external scholarship (Tri-Council Agency here in Canada) then you were actually paid for TAing on top of your scholarship because they couldn’t decrease your external scholarship. Same example as above but you’d have a 25k stipend PLUS 4k for being a TA.
(I was a little bitter being the student who didn’t get the external scholarship, haha)
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Mmm, I see, yes. Actually a friend of mine had the same situation. She took a short summer job at the university (sort of an enrichment activity) and was willing to forgo her outside fellowship during that time in favor of what her job would pay, but as she was unable to reduce her fellowship pay she had to receive both stipends – oh darn!
Wow, that was really poorly worded and a generally bad email! Good thing you knew what was going on or we may have had to pick you up off the floor 🙂
I wonder if the difference in “work” vs. “Gift” designation is not related to your advisor, but the funding source. I can see how a stipend from NSF or NIH or a granting agency like that could be considered “work” as they are paying to have specific goals researched/accomplished and the beneficiaries of that work are funding it (I.e. should be in the best interest of colletive taxpayers). Fellowships might be thought of as “gifts” because the beneficiaries of the research may not be directly funding the work (people with or without cancer donating to American Cancer Society, for instance).
Doesn’t make an iota of difference in terms of what you do though, and ridiculous that you can’t contribute to your IRA! But then again, when is the last time a tax law actually made sense and was fair to everyone…
I think the difference is more in why the person was chosen for the funding. For a grant, you are funded based on the strength of the proposal primarily, so like you said there are specific goals for the research. For a fellowship, you are funded based on the strength of the applicant primarily, so it seems more like a scholarship. So that’s why students on training grants are paid like they had a fellowship. I just had this thought for the first time so it might not bear out…
Yes, you’re right, non-comp grad students and postdocs are not the only ones getting screwed by the tax code!
As someone who gets paid by a noncompensatory grant, but is given a W2, I can confirm that this is indeed all a bunch of bullshit.
Yeah, your situation is inscrutable, too!
Be careful with your Roth. Your maximum contribution is tied to your income. In 2008, I wound up only having ~$8000 of earned income, and had to pay a penalty for “over-contributing” to my Roth. The crazy part is that I only contributed the $500 with which I opened the account!
As far as the form and email, remember it was written by beurocrats. While your income isn’t decreasing, your pay is being eliminated. So Payroll has to inform you that your pay is being reduced. They probably don’t have a form for “Accounting Change in Income” and it probably wouldn’t get opened by half of the students anyway. With a title like “Decrease in Pay” you can bet that almost everyone is going to open that email!
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Yes, the max contribution is tied to your income, but you should have been able to contribute 100% of your earned income up to $5,000… What’s the rest of the story?
I didn’t have to acknowledge that my non-comp pay was going to zero when they switched me to comp. 🙂 I’m not sure why they have to inform me so strenuously as to give me a shock! I guess it’s good they did inform me, though, as I think all my non-comp info like my address is out of date.
Okay, I figured it out. That year I filed as married filing separately to protect my assets from my wife’s bankruptcy. Apparently, the IRS really, really doesn’t like people married people filing separately and adds in a much of additional rules and restrictions, like a minimum income for contributing to an IRA.
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OK that makes more sense! Thanks for going back and indulging my curiosity.
Our tax system is a mess and I think you have every right to be frustrated and confused. There are so many things like this that don’t seem to make any sense. I’m glad that at least for your situation it should work out okay.
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I am all for the simplification/streamlining of the tax code!
It’s mostly OK because the academic year doesn’t match the calendar year. 🙂
Haha wow that is totally ridiculous and horribly worded!
When I switched from compensatory (TAing during two years of classes) to non-comp (conducting research full time) last year, I received no notification, so when I received my first paycheck without taxes deducted, I was thrilled that it looked like I’d gotten a great raise, as I had heard the grad school was increasing stipends. My husband, who is a year ahead of me, said “Wait a minute…I don’t think this is what you think it is. They only increase stipends for new students, you still get paid whatever it is you were offered when you started, so it’s probably taxes.” So then I looked into it, realized he was right, and was really upset that this apparent raise was no such thing 😛
Yeah, payroll offices could do a way better job explaining what is going on with these different categories than just issuing a blanket disclaimer that “you are responsible for figuring out your own tax situation”!
Aw, that’s a terrible kind of surprise. Good thing your husband could see through it.
I regret that university officials can’t say more about grad student taxes, but it makes sense that they can’t from a liability perspective. They don’t make the policy. 🙁
Whoa! I think I’d freak if I got an email like that. Decrease in pay!!! A company would never do that to you, and a university should be smart enough not to send an email like that. wow.
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Ugh, I would have hoped so!
This actually got me wondering, so I went back and checked my SSA & Roth IRA records. The calendar year that virtually all of my income was fellowship, I show almost no SSA or medicare taxed earnings, but I did still deposit the maximum allowed into my Roth IRA that year. (An amount way more than whatever “earned income” I showed for SSA purposes.) This was 8 years ago now, and although technically I might not have been Roth IRA eligible (I certainly didn’t know or realize it at the time), I’ve never had any fall-out. Don’t know if I got lucky or if I had so little money back then it wasn’t worth the iRS’ time to care.
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I think it’s extremely rare for the IRS to pursue these mistakes. I have searched on several occasions and only seen, like, one person claim to have been confronted over it within a few years. Since you’re outside the period of time in which you can get audited, I think you can largely rest assured that you won’t have to rectify the mistake. I am afraid, though, of the IRS coming to call right at retirement to say that an enormous chunk of your savings has to be penalized! Especially since there have been those murmurings about Roth IRA caps. I don’t know if that’s legally possible so far down the road.
I’ve never experienced anything like this but I probably would have been just as shocked as you after receiving that email. Misleading subject line to say the least.
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And I like how it’s a forward! Who was the first recipient other than me??
It’s ridiculous that MISC income isn’t considered earned. That’s how just about every direct sales company (Pampered Chef, Scentsy, etc) pays out commissions to their representatives since they aren’t actually company employees. How the IRS thinks that your income and that income isn’t “earned” is beyond me. It’s never caused me a problem, but it doesn’t feel right either.
No, no, please don’t misunderstand. 1099-MISC box THREE is “other” income, where fellowships and scholarship fall, and it is not “earned income.” 1099-MISC box SEVEN is what independent contractors like the ones you mentioned receive, and that kind of self-employment income is considered “earned.”
Thanks for clarifying. Since I only did that a short time and had a full-time job it didn’t really matter for me, but it’s good to know.
I could see true scholarships not counting, but if there is an exchange (i.e. research/TA duties, etc required) I think it should be considered earned.
Thank for backing me up! 🙂
Phew! That is one scary email! I would have panicked before I actually looked at it. I hate when my boss asks me to close the door when she calls me into her office. it’s always been just fine but it freaks me out!
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Yeah I was definitely on the verge of panicking! And after I knew it was OK I was really displeased with the sender!
Do you get any kind of additional benefits under compensatory pay (e.g., health) that you would lose under noncompensatory? That would be a pay cut.
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Not that I know about. Health insurance is paid by scholarship/fellowships either way. No payroll taxes under either system. We aren’t actually considered employees even when being paid by W-2, and we get all the student discounts and such under both systems.
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Sometimes people just don’t think about things before they send them. My HR department is notorious for doing stupid things that upset people because they don’t take a minute to think about how things look/sound. Glad your pay is not being decreased!
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Sorry you have to deal with this, too!
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