On November 16, 2017, Republicans in the House of Representatives passed H.R. 1 (the "Tax Cuts and Jobs Act") along a party-line vote. The bill includes massive tax cuts for the wealthy, while substantially increasing the deficit and, and increasing the tax burden for many middle-income earners. In an attempt to reduce the deficits created by these tax cuts, the tax bill also makes tuition payments by colleges and universities taxable as federal income. This would dramatically increase students' tax bills, by up to $10,000, potentially quadrupling tax bills for students at private universities. Scientific and higher education associations have opposed the measure, noting that it would discourage student enrollment, devastate the teaching and research missions of universities, massively increase the cost of college attendance, and weaken the STEM workforce in the U.S.

The analysis below details how the tax bill passed by House Republicans would affect graduate students, using the example of a student at a private research university. In the meantime, Republicans in the Senate are proceeding with their own tax bill, which differs in many ways from the House version and does not currently include the same provisions to tax tuition reduction. If the tax bill passes the Senate, the two versions will have to be reconciled, and it remains to be seen which parts of which bill would be included in the final version. Thus, we must remain vigilant that the provisions described below never make it into law.

Existing Tax Code with Respect to Qualified Tuition Reduction

The IRS currently treats tuition payments made by an educational institution on behalf of a student or employee as not a part of that student's taxable income. For many graduate students, especially in the STEM fields, the university pays their tuition each semester and offers a stipend on top of it. Each student subsequently receives a 1098-T form each tax season to that effect, but the student's obligation stops there. As an example, at one typical large private research institution, $50,410 was paid for a year of a graduate student's tuition payments. Under the existing tax code this information does not enter into the student's personal tax calculation, as described in 26 U.S. Code §117 (abridged, emphasis added):

(a) General rule
Gross income does not include any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization described in section 170(b)(1)(A)(ii).
(b) Qualified scholarship
For purposes of this section–
(1) In general
The term qualified scholarship means any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.
...
(d) Qualified tuition reduction
(1) In general
Gross income shall not include any qualified tuition reduction.
(2) Qualified tuition reduction
For purposes of this subsection, the term "qualified tuition reduction" means the amount of any reduction in tuition provided to an employee of an organization described in section 170(b)(1)(A)(ii) for the education (below the graduate level) at such organization (or another organization described in section 170(b)(1)(A)(ii))...

Thus, whether graduate student tuition payments are considered "qualified scholarship" or "qualified tuition reduction" (for employees), the tuition payments are not taxable.

The Republican Tax Plan

The House version of the Republican tax plan eliminates section (d) of the existing 26 U.S. Code §117 on page 96:

SEC. 1204. REPEAL OF OTHER PROVISIONS RELATING TO EDUCATION.
(a) IN GENERAL. Subchapter B of chapter 1 is amended–
...
(3) by striking subsection (d) of section 117.

This means that if graduate students are classified as employees, and most are as teaching assistants (TAs) and research assistants (RAs), the tuition payments made by the university on their behalf would now be taxable to them personally. A sample STEM graduate student at a private research university made $31,000 in wages as a teaching assistant or research assistant in 2016, and filed singly claiming one exemption and the standard deduction (which would be doubled in the new plan). The tuition payments disclosed to the student on their 1098-T provided by the university shows the tuition payments. Here's a breakdown of the difference in tax burden:

If graduate students are classified as employees, their tax burden will increase about 400%. Can any TAs and RAs afford an additional $8,000 in federal taxes every year?

Finally, it should be noted that the Republican tax bill also eliminates student loan payment deduction, the Lifetime Learning Credit, and modifies the American Opportunity Tax Credit, which will each add their own burden to postgraduate students. None of those changes are addressed in the above calculation.