Understanding Taxes as an Academic: Common Considerations and Shortcomings

In this episode, Neeka Miremadi breaks down the complexities of taxes for professors, for those new to academia or continuing. She covers essential tax concepts, including how W-2 income differs from self-employment income, the importance of understanding calendar-year taxation, and how additional consulting or freelance work impacts tax obligations. Neeka also highlights common tax pitfalls, such as under-withholding for those with multiple income sources or married professors filing jointly. She provides actionable steps to help listeners assess their income sources from the previous year and prepare for tax season with clarity and confidence. While not offering tax advice, she emphasizes the importance of planning and seeking professional help when needed.

Takeaways

·      Taxes are complex but manageable with the right knowledge.

·      W-2 income does not allow for write-offs.

·      Keep track of additional income for accurate tax filing.

·      Consulting work may require estimated tax payments.

·      Married professors need to coordinate tax strategies.

·      Understanding your tax bracket is crucial for planning.

·      Use previous years' income to inform current tax strategies.

·      Seek professional help if tax situations become overwhelming.

·      Stay informed about IRS deadlines and requirements.

·      Financial clarity leads to better tax outcomes.

If you’ve got questions, suggestions for future topics, or just want to say ‘hello,’ you can reach us at https://attainablewealthfp.com/schedule-a-call/.

Any product or financial recommendations provided by Academics and Their Money, Inga, or Neeka are made solely in the author’s opinion and do not constitute professional financial or legal advice. All content is for educational purposes only.

Transcript

Neeka Miremadi (00:00)
Hey there and welcome to another episode of Academics and their Money. My name is Neeka Miremadi. If you're a new professor or about to start your first academic job, this is the place for you. Today we're going to dive into an essential financial topic, is taxes. Not fun, but we'll get through it together. I've worked a lot with clients in academia at Inga's side and have seen the highs and lows firsthand.

So I'm here to break down the key things you need to know as you navigate your new or continued career as a professor. Just a quick heads up, this isn't tax advice, more like tips and things to keep in mind as you just figure out your financial journey and also what the heck is going on with your taxes. So just to keep in mind as we go through this, taxes are...

calendar years. Now there's other exceptions that make it confusing like you know you can contribute to an IRA up to tax day or

the deadline for an estimated payment to the IRS is in January, but just keep in mind the calendar year is what you have to deal with. That's the only thing you can focus on. So if you're filing 2024 taxes, any income or anything that happened in the calendar years of 2024 is all you have to deal with. Now it gets confusing when the university

says that you're entitled to X amount of dollars. It's a stipend and you worked for the money in 2024, but you actually got the stipend in 2025 in terms of taxes and for the IRS's purposes, that's 2025 income, not 2024. So think in really finite terms, think of, you know, money deposited into my bank account, not services accrued. and that's a really just a basic

concept to understand as we dive in deeper. So I understand the complexities and the trickiness of taxes as a professor, because some things are straightforward. For instance, if you're a fuller adjunct professor, you'll likely just get a W-2 in the mail and you'll file taxes like any other employee of any other company. And just keep in mind that when you're an employee and you get W-2 income, you can't

write things off, okay? However, something to keep an eye out for. Now, listen, if you're listening to this podcast and you're like, Nika, I only have W-2 income, then that's all you really need to know. I mean, there's other tax forms that just have to go along with your life. But in terms of being a professor, if you're just a straightforward W-2, you make no other income on the side. then you're fine.

You know, this is one less podcast you have to listen to. However, if you do make other money on the side, if you do extra work for the university that doesn't quite fall into your pay grade at work or your job description, then you are getting supplemental income. And there's so many different ways that it manifests in terms of payments and taxes. So this is what I'm gonna kind of go through so you can become aware.

and make sure that you have everything lined up properly and there are no surprises. So let's get straight into it. We already went through W2s, right?

So the next most simple situation is that you do some extra work for the university on the side and they just include it into your pay stubs, which is going to be then included on your W-2 come tax time. Hopefully when they add it to your pay stubs, that means that they are withholding. Now, the withholding can be at the rate that they expect you to make that year, right? So if you're expected to make 125K, they're going to just keep the withholding at

the assumption that that's how much money you're going to make throughout the year.

The even sweeter deal is that they see that you have this 20K extra income and they make sure to adjust your withholding if that bumps you up into a different tax bracket. It's a little hard to tell. We do income and tax projections that are very, very rough when we do work with clients, but it just gives us a general understanding of, okay, you've made this money, this much money this year.

last year you made this much, you're in a different bracket, or you're not. You're going to just be half a percent off and it's not the end of the world. That's how we bring value.

So that's like the lucky case, you you make money, they put it in your pay stub, you don't have to think about it, there's really nothing else to do. They could be withholding at an ideal rate, they might not, but either way, it's included there, it's getting reported to the IRS. Okay, however, the less ideal situation, or I mean, it's not that it's less ideal, it's just something to be a little more conscious of, is let's say you have a speaking engagement at a university.

or you do consulting work on the side, whether it's with universities or with private clients, or you do freelance work on the side, whatever your industry standard is, you need to keep an eye and keep track of that additional income for multiple reasons. One reason is hopefully if you do work for a big institution, they're sending you a tax form like a 1099 NEC, which stands for

non-employee compensation or they're sending you if the accountant didn't know how to categorize it they'll just send you a 1099 misc or miscellaneous you'll get that in the mail

that will tell you how much you made from them. They've reported this to the IRS. Now it's just your job to file the taxes on this. The tricky part comes in where you should have been paying taxes on this money because there are no withholdings. So you should keep track for multiple reasons. And one of them is not just to file your taxes, but also throughout the 2024 year, if you know,

that you're gonna make 125K from your professorship salary, and then you're gonna go and do some consulting work, and you're gonna make another 125K, you need to make sure that you're making some estimated payments to the IRS because surely you're doubling your income. You're gonna be in a different tax bracket. So the amount being withheld from your paychecks alone is not enough, to compensate for the 125K extra that you have to pay taxes on. But it's also just gonna bump you up.

to a completely new tax bracket. So that's something to keep in mind. Additionally, when it comes to filing your taxes.

Another common problem I see are two professors that are married and they file jointly. Their pay stubs don't know.

their employers don't know that their spouse makes X amount of money. And they certainly don't know what either spouse is going to bring in terms of consulting income. sometimes there's a simple disjointment between withholdings on a normal W-2 because someone is filing jointly and because the withholding rates are different because

HR doesn't know how much your spouse is making, but then also it gets even messier when each spouse brings in some consulting income, then you really got to make sure that you're on top of it. So it's okay to be short one year for in terms of taxes, like you could be a couple thousand short. However, if you're short two years in a row, you're going to be paying a penalty. So if you're short one year, I would recommend

figuring out why you were short and solving it for next year. Now, we're not CPAs. We just do tax planning. We just try to understand your situation and plan for the long term. If you would like to consult the CPA and you need to understand your situation, that is absolutely an option. We just help you kind of get an idea of how taxes fit holistically into your plan and also run these very, very, very

loose estimates in terms of income and tax projections to just see, you know, where you are.

So my homework for you, my friends, is to look at the calendar year previously. Right now it's 2025. So look at the calendar year of 2024 and see if you only did W2 work or you had other work come in. If you did, was it reflected on your Paste up if it was at your current university or if you did work for other universities or consulting clients, how did those come in?

Did they come in on 1099s? Did nothing come in at all and you have to report it as self-employment income? These are all considerations to have. So your homework is again, to go in, see, what did I do last year? How much money did I make? What's going on? And then that'll give you the first step to gaining clarity when you're ready to file your taxes, like, okay, what's going on? And if you come up short, then just please make sure that you're not short.

the next year. And if you have any questions, Inga and I are always here. You can go to attainablewealthfp.com. You can also contact me directly. My email is neeka, N-E-E-K-A at attainablewealthfp.com. We're open to episode suggestions and any questions you may have. We're also very happy to have a conversation and see if we can help you out.

Taxes can be scary and overwhelming, but a little elementary

knowledge can go a long way in helping you feel confident and competent and able to tackle what's ahead.