Deferral Stipend, Tax Law

Taxes Eat Away at Georgetown’s Public Interest Stipend for Some Students

We’ve done a lot of coverage about deferral stipends, public interest stipends, and other direct payments to graduates who are not able to secure prime, private practice employment.

If you think about it, these programs have popped up with shocking speed. In 2007, there was no such thing as a “deferral stipend” from firms, and the public interest fellowship programs offered by schools were small and for grads who wanted to wait a little while before heading into the open arms of a private law firm. Now, these programs represent the last hope for grads who are unable to secure jobs.

With everybody trying to describe what these programs are, there’s been little time to analyze how these programs work. One aspect is particularly interesting to students considering some of these stipend options: how will the stipend be taxed.

Because each program is different, the tax situations differ wildly. So you really need to work with your career service/human resource people and figure out how your stipend will be taxed.

If you didn’t put in that work with regards to the Georgetown University Law Center post-grad public interest stipend, the taxes totally screwed up your budget…

Georgetown offered its 2010 grads a public interest fellowship option. If you worked for a public interest organization, full-time, for three months after graduation, GULC gave you $4,000.

That’s not a lot, but it’s something.

The stipend was supposed to be paid in two installments, but the timing of payouts got screwed up. A tipster reports:

Initially, the stipend was supposed to be paid in 2 installments, one before the start date and another one half-way through the internship. The amount was going to be $4,000, and the grads would be responsible for paying any taxes.

In late Sept, they sent out an email apologizing for the delay (no one got
paid at that point) and saying that now the payments would be processed
through the payroll office, which would take out taxes.

The money didn’t come through until October.

But for our tipster, the (late) money was a lot less than what he had hoped to receive:

Now, in the middle of October, they finally disbursed the funds, but the geniuses working in the payroll office processed them as $4,000/pay cycle (x24 payroll cycles in a year = $96K/yr salary) instead of $4,000/3 months ($16K/yr), taking out about 30% in taxes. To put it in numbers, I got $2,800 instead of the promised $4,000.

In real terms, when you are living on a slim budget, losing $1,200 is a pretty big deal, as our tipster explains:

For me, the $1,200 would cover almost 2 months of rent (I live in a shoebox an hr away from work). Had I known I would get $2,800 for three months, I would have considered working in public interest part-time to put something on my resume and getting a side job as an LSAT instructor to make money. Now, I am working full-time with no flexibility to get anything on the side, and I am only getting 70% of what I counted on for it. Great job, Georgetown.

So did Georgetown’s clerical incompetence rob this guy of $1,200? Not according to GULC. A spokesperson for the GULC Career Services office put the blame squarely on the graduate for not changing his own tax status with the university after graduation:

We did initially inform participants that they would be paid via stipend, but were subsequently advised by the University’s Tax Office that the funding should be disbursed through our regular payroll process. This meant that payroll taxes would be taken out per the tax forms submitted by participants. Participants were informed of this change, asked to review their tax information already on file and complete the necessary forms related to state and federal taxes if any changes needed to be made.

Many students contacted the Payroll Office to review and, as appropriate, change their information. All payments were made based on the tax information on file for each student. The amount of taxes withheld varied significantly based on the student’s particular situation and in some cases, no taxes were withheld.

So according to GULC, the students who got screwed on the taxes were the ones who didn’t update their tax information. Ouch.

I’m sure graduates and GULC can cast aspersions at each other all day long, but the lesson should be clear. Do I even have to say it? CHECK YOU TAXES!

At the end of the day, you always have to be on top of your tax profile. You don’t even need to have aced Tax Law, you just need to ask lots of questions whenever anything is unclear to you. These programs are new and complicated.

And they’re making up the rules as they go along.

Earlier: If You Hire Miami Law Students, The School Will Pick Up The Bill

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