1

Since public universities are nonprofit organizations, do their employees including faculty pay less taxes than those who work in industry?

  • 3
    Why would employees of nonprofit organisations pay less tax, apart from the obvious fact that they likely earn less money than those in the commercial sector? – MJeffryes May 28 '15 at 14:27
  • @MJeffryes The nonprofit organizations are tax exempt, so I though that their employees would get some advantages. – Thomas Lee May 28 '15 at 14:52
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    Of course tax laws vary between countries (and sometimes between jurisdictions within countries). Do you have a particular place in mind, or are you looking for a global survey of tax treatment of university employees? – Nate Eldredge May 28 '15 at 15:11
  • @NateEldredge mainly in US, but knowing the global status would be useful – Thomas Lee May 28 '15 at 15:19
  • 1
    Are we talking about taxes relative to income, absolute taxes per person or absolute taxes in total here? – Wrzlprmft May 28 '15 at 16:56
11

Not in the US. There's no special tax breaks for non-profit or government employees here. They probably pay less in an absolute sense because their salaries are somewhat lower, but they don't get special rates.

  • 3
    And given progressive taxation, people who earn less (like employees of not-for-profits) will not only pay less in an absolute sense, but also less as a percentage of their pay. – Stephan Kolassa May 28 '15 at 14:29
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    @StephanKolassa This is not actually true in the US, because people with high incomes tend to have more income from low-tax categories, such as capital gains from investments. – jakebeal May 28 '15 at 14:57
  • Isn't there a scheme where you can have your student loans forgiven if you work for a public institution for X number of years, while making minimum payments? – user14156 Nov 18 '16 at 11:31
8

While I don't think this is true for any universities, the employees of certain non-profit international scientific organisations, including CERN, EMBL and ESA are exempted from national taxation. They are instead required to pay an internal tax which returns a percentage of their income to the employing organisation, with a tax band structure similar to conventional income taxes. In some cases this might result in an employee paying less than if they were under their national tax regime, but it might also result in them paying more.

6

In America, employees of governmental or nonprofit organizations are taxed the same way as employees of for-profits. The non-profit itself is generally exempt from taxation, but its employees are not. So there are no obvious tax advantages to working at a public or nonprofit university versus working for a for-profit corporation.

(I assume this will be much the same throughout the developed world.)

5

Here is one case in which this is sort of true.

I work for a public university in the US state of Colorado. Colorado has decided that its public employees shall not participate in the federal Social Security system (states have the right to do this, under US law, though not all actually do so). As such, employees of public universities in Colorado do not pay Social Security tax. However, this means we also do not earn credits toward receiving Social Security retirement benefits. (The state used to offer its own pension system to state employees, but this is now being phased out in favor of a third party-managed defined contribution scheme.)

(We do still pay state and federal income tax at the normal rates.)

So this is one case in which university employees are exempt from a certain tax. But it is not related to non-profit status (private nonprofit universities in the state do not have this exemption) and it comes with a corresponding loss of government benefits.

Perhaps more directly related: I believe that at all US universities (all states, both public and private), student employees are exempt from paying Social Security tax (and from earning credits). But this does not universally apply to full-time employees.

  • That sounds horrible in terms of losing social security benefits. – RoboKaren May 28 '15 at 23:10
  • @RoboKaren: as a beneficiary of such a plan, I can attest that it is excellent, since the retirement benefits are significantly higher than under SS. – user6726 May 29 '15 at 4:23
  • But if you were paying into SS, wouldn't you have gotten both the pension and SS? And with the shift to 401k, doesn't this place new employees at high risk to the stock market? – RoboKaren May 29 '15 at 5:20
  • @Robokaren: at least in my case, employees and employer both contribute more to the DCP, to make up for the SS tax not being paid. The employee has some choices as to how the contributions are invested, so it's not necessarily all in stocks. But if you're not careful, you can definitely invest at high risk and not have the SS safety net to fall back on if you lose. – Nate Eldredge May 29 '15 at 6:01
4

On an international note, in Germany, university professors are considered to be in a special class of public employees known as Beamter, and are exempted from all federal payroll taxes except ordinary income taxes and the reunification tax. This also means, as indicated by Nate Eldredge in his answer, that they are not able to participate in the federal social insurance scheme. Instead, they receive a pension paid for by the individual state governments in which they work.

1

Another "partial" case. In some states, when a teacher buys supplies for the classroom paying from her own pocket, she can be exempted from paying the sales tax on those items.

50 years ago I had a summer job at a federal lab. One of the old-timers there once joked about a time (even then it was "long ago") when federal employees were exempt from federal income tax.

  • US teachers paying for supplies (within limits) also get a Federal income tax deduction "above the line" (even if you don't itemize), see irs.gov/taxtopics/tc458.html . Although this is one of several dozen tax benefits that Congress must re-enact every year (or sometimes two) and there have been several times they didn't get that done until December, after IRS forms/instructions and programs plus private programs like Turbotax had been prepared without the "extenders", often causing filing and processing delays. – dave_thompson_085 Jun 2 '15 at 4:53

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