Help my sister figure out where she should file taxes

My sister is in a PhD program in DC on the NSF fellowship (already a tax nightmare). She lived in DC from January to March 2nd, when she flew home to Maine for spring break. She then got stuck at home in Maine for basically the rest of the year (she went back to DC for a week in August to get her stuff). She paid rent on her house in DC through August, then sublet her room from September through the end of the year. It’s a sublet, not a replacement. She continued paying estimated quarterly taxes in DC because she kept thinking she’d be moving back soon.

Where should she file? Where is she domiciled? Does the fact shed have to file in Maine and potentially get fined for not paying quarterly taxes mean she should just stick with DC? Should she pay her 4th quarter taxes to Maine and act like she moved in September? Why is this system a nightmare and why won’t anyone give NSF recipients tax documents? (Last question is rhetorical).

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Does she consider herself domiciled in DC?

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I mean, I think technically, she needs to file in more than one place. Most states have laws that if people work in them, even if they live in another state, they still owe taxes. And then deal with the reciprocity (or not) between various places for taxes already paid to another jurisdiction.

I’d go with a professional.

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She votes in Maine? I think that’s kind of the crux of the question. She’s in DC until she finishes her PhD (and even when she’s in DC she’s only there 4 months/one semester a year, normally she spends the rest at a field site in a different country). So for voting/drivers license laws she’s entitled to keep those things in Maine because that’s her permanent address. But she gets paid in DC. And no one gives NSF recipient tax documents so it’s kind of unclear what address NSF even thinks she’s at.

How would she go about finding someone who understands academia who she could afford as someone who makes $36k a year entirely from grants and fellowships?

For those who don’t know, NSF GFRP fellowships are funded by the federal government but disbursed by the school. The federal government has no comment on if it’s a wage, a fellowship or just free untaxable money. The schools generally refuse to comment since they don’t want to do anything wrong. So she doesn’t get any end of year tax documents, because no one will issue a 1099. If you google wtf to do no one knows the answer, including all the other people who got the fellowship. It’s a huge mess.

I think that income is too high to qualify for most low income tax preparation help.
(I know my Dad does free taxes, and is an extremely qualified tax accountant. But for non-low income, he charges a fortune…)

I think there is also a lot to be said for doing your best and then apologize and pay the fine to correct it if you are one of the few who get audited. I would suspect MOST PhD students don’t know how they should be doing it, but the IRS is extremely understaffed, she really doesn’t seem to be worth going after…

Sorry I have no useful advice.
If she did most of the work in Maine, and has residence in Maine, I’d probably file there. But that is just what I would do and in no way legal advice.

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Yeah she’s not low income, but it’s a stupid amount of complexity for the level of income, and like most academic things it’s extremely niche. Plus it’s unclear if there is a correct answer, because this has been a problem for at least 30 years and every year the grad students on the fellowship post the exact same questions to message boards and get the exact same shrug emoji reaction.

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My husband had a lab mate who didn’t believe in taxes, and just never filed them when he was on NSF fellowships. He’s never been audited.

I don’t think I’d recommend that approach.

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The NSF never actually says that it’s taxable, so… he had a good argument if he had been audited.

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It doesn’t matter where she is for federal taxes, it’s a question of where does she file state taxes. And that is going to depend on state law. She will probably have to file as a part year resident in both states.

I would, personally, think that this would be worth paying an accountant for, but I’m also personally too cheap for that and I dunno that her income is high enough to trigger an audit at the state level.

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She may very well owe for both states unfortunately; depends on DC’s tax law- some let nonresidents or part year residents escape taxes, most don’t.

I am not an DC tax expert unfortunately but this is 100% a case where I would find someone with ability to do taxes in both DC and ME for the pure purpose of it varies so much state by state. There is no universal standardd.

$60K a year was our upper limit when I was a tax-aide volunteer. But she would likely need an individual preparer because it might be out of scope for tax aide. But $36K a year is below 200% of the poverty level so I think the BEST bet would be to ask for resources at her institution’s financial aid (or if they have it) financial wellness office. They likely know someone in the network.

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I was never cool enough for the NSF, but I had a fellowship from my school my first year. It’s wrong how little guidance there is on how to deal with this. I didn’t end up filing quarterly taxes cause it wasn’t on my radar.

That said, what I know is…(subject to correction by those more knowledgeable)

  • Scholarships and fellowships are taxable if used to pay living expenses and not “qualifying educational expenses” ie tuition and maybe certain fees. “Is my scholarship taxable?” Should find relevant info.
  • There is a place on the 1040 (all versions I think?) to add “other income” even if you don’t get a document. Some sources told me this was the right place for taxable fellowships. Shrug emoji.
  • For state taxes, the tax form instructions should have a section on who needs to file and who is resident/nonresident.
  • My/many students’ approach is “do the best you can with the resources available.” One can save the docs/paperwork (local and/or paper copy) in case you need to explain yourself.

I don’t necessarily advise my approach, #NotATaxProfessional, and I acknowledge some risk involved in filing possibly erroneous taxes…

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The AmeriCorps education awards are not only taxable, they are also 10% taxed at the federal level regardless of your tax rate in the year you use it. So you make poverty level wages (I made $10,000 a year in Americorps) and then get ~$6000 scholarship to use on education, and you have to pay 10% taxes on it plus your state taxes. I’m so bitter about this.

And of course there’s little to no resources on it.

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Okay, I did a tiny bit of research but remember I am not a tax preparer for DC or ME.

Maine has a resident tax credit for taxes paid for work in other states. Since she paid quarterlies in DC, if I were her I would file tax forms in ME and in DC, and I would take the credit that Maine offers residents for taxes paid to other jurisdictions. That way she can avoid dual taxation. I would think of it like “she is a maine resident, but she worked in DC (remotely).”

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For this free tax prep program it’s $66k a year so she would qualify. I’m not completely positive that they would know how to handle her grant situation, but even if she doesn’t it could be worth trying in January so (1) there’s time for another option if necessary and (2) they might be able to refer you to another free file program or low-cost CPA. When I volunteered as a VITA tax preparer there were about 10 volunteers at a time who wouldn’t have known what to do but also a CPA manager who could be pulled in for complex cases – they may have that capability too.

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Also a lot of VITA volunteers are practicing or former CPAs/Tax preparers and may be able to help based on their practice. What’s helpful is if she goes to a site/gets virtual help from a VITA team based in DC, they are FAR more likely to know what to do with NSF grants since like 1/10 of the economy there runs on various gov’t grants.

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Anecdotal report of IRS interaction, but there was one year I had two internships in two different states (summer and winter), worked during the quarters I was in school in state 3, and my official residence was state 4 (mattered for a specific scholarship). I did the best I could with tax software, the IRS said it wasn’t good enough which kind of made me freak out when I got the letter…and then I talked to a human whose response amounted to ‘Why are we even on this phone call?’ I think she eventually declared I owed someone $19 and we both got on with our lives thinking that it had been an annoying waste of an hour.

I would guess that as long as your sister makes a reasonable attempt (personally I’d try tax software–no idea about NTF specifically but TurboTax definitely has a section for fellowships and grants if you mark yourself a student) even if it turns out to be wrong, and even if she’s selected for audit, you’d just get a notice to correct and not a bunch of insane fines.

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