117(d): Please don’t tax PhD tuition waivers

This is a rare politics post; I’ll try to keep this short and emotion-free. If parts of this are wrong, please correct me. More verbose explanations here, here, here, here, longer discussion here.

Suppose you are a math PhD student at MIT. Officially, this “costs” $50K a year in tuition. Fortunately this number is meaningless, because math PhD students serve time as teaching assistants in exchange for having the nominal sticker price waived. MIT then provides a stipend of about $25K a year for these PhD student’s living expenses. This stipend is taxable, but it’s small and you’d pay only $1K-$2K in federal taxes (about 6%).

The new GOP tax proposal strikes 26 U.S. Code 117(d) which would cause the $50K tuition waiver to also become taxable income: the PhD student would pay taxes on an “income” of $75K, at tax brackets of 12% and 25%. If I haven’t messed up the calculation, for our single PhD student this means paying $10K in federal taxes out of the same $25K stipend (about 40%).

I think a 40% tax rate for a PhD student is a bit unreasonable; the remaining $15K a year is not too far from the poverty line.

(The relevant sentence is page 96, line 20 of the GOP tax bill.)