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nsabham · Mar 12, 2009, 06:15 AM

I am a full time postdoctoral fellow at an academic/research institution. I applied for an independent fellowship and my fellowship started from July 2008. This fellowship is state tax and FICA-exempt, but I was supposed to make estimated tax payments on this fellowship. My employer did not hold any amount from my paycheck from July onwards. Due to my negligence and family issues I could not make estimated payments for 2008. I understand there may be a penalty. However, I received W-2 for first half of the year 2008 that shows wages $18000 (box 1) and federal tax withheld $953. I tried to fill my 2008 return based on this information in turbo tax. The final outcome of turbo tax states that " total taxes are $31.00 and the refund is $923.00".

I am confused that do I still have to pay penalty because according to 2210 form you will not have to pay the penalty if the total tax shown on your 2008 return minus the amount of tax you paid through withholding is less than $1,000.
My other questions are How do I pay my missed estimated tax payments from 2008.
Thanks

ebaines · Mar 12, 2009, 08:44 AM

First - are you sure your fellowship is taxable? And if so, what value did you input into TurboTax for it? Did the school give you a form 1042-S or other document that tells you the taxable amount of the fellowship?

As for estimated taxes - you pay estimated taxes throuhgout the year to avoid having a big tax bill at the end of the year and to avoid the prospect of a penalty for not having kept current on your tax bill throughout 2008. If in fact you have a refund due from the IRS for 2008, then clearly there is no under-payment penalty, so no need to worry about what happened in 2008. As for 2009, you may want to consider filing estimated payment each quarter to avoid a potential penalty.

nsabham · Mar 12, 2009, 09:26 AM

Originally Posted by ebaines

First - are you sure your fellowship is taxable? And if so, what value did you input into TurboTax for it? Did the school give you a form 1042-S or other document that tells you the taxable amount of the fellowship?

As for estimated taxes - you pay estimated taxes throuhgout the year to avoid having a big tax bill at the end of the year and to avoid the prospect of a penalty for not having kept current on your tax bill throughout 2008. If in fact you have a refund due from the IRS for 2008, then clearly there is no under-payment penalty, so no need to worry about what happened in 2008. As for 2009, you may want to consider filing estimated payment each quarter to avoid a potential penalty.

Thanks ebaines for your quick answer
Yes my fellowship is taxable for sure. In turbo tax, I put the value which is shown in my w-2 which spans from January 2008 to June 2008. My fellowship started from July 2008. Based on six months income I am due refund. I know this is not the right way to calculate. I have not put fellowship income for 6 months in turbo tax. I do not know what is the right way to pay taxes for the income which was not reported to IRS (July to December). Should I include in turbo tax (as Box1 income+fellowship amount) or do I have to do it separately. OR should I just go to tax shop and talk one to one about my case.

ebaines · Mar 12, 2009, 09:38 AM

If your fellowship is taxable then you need to include its value in TurboTax. Since you haven't done that yet, TurboTax is assuming that your total income for the year is only $18K, when in fact your taxable income is greater than that. If the school hasn't given you any documentation on the value of your fellowship, I suggest you talk to the administration about it. Finally, when going through the TurboTax "interview" regarding income I believe that it asks specifically about stipends and felowships, just as it asks about W-2's. So you should go through that section of TurboTax again. You should read the following to see how felowships are taxed:

Publication 970 (2008), Tax Benefits for Education

Finally, here's a good summary of reference material:

http://vpf-web.harvard.edu/ofs/tax_s.../fell_hand.pdf

nsabham · Mar 12, 2009, 01:10 PM

Originally Posted by ebaines

If your fellowship is taxable then you need to include its value in TurboTax. Since you haven't done that yet, TurboTax is assuming that your total income for the year is only $18K, when in fact your taxable income is greater than that. If the school hasn't given you any documentation on the value of your fellowship, I suggest you talk to the administration about it. Finally, when going through the TurboTax "interview" regarding income I believe that it asks specifically about stipends and felowships, just as it asks about W-2's. So yuo should go through that section of TurboTax again. You should read the following to see how felowships are taxed:

Publication 970 (2008), Tax Benefits for Education

Finally, heres a good summary of reference material:

http://vpf-web.harvard.edu/ofs/tax_s.../fell_hand.pdf

Thanks again
Turbo tax is not very useful for this. My fellowship is state tax-exempt. Whenever I enter amount from my fellowship it automatically transfer to the state income as well and show me the amount I owe rather than DUE. Any idea how to combat with this situation.
Thanks once again. You guys are doing great job.