How to Do Your Taxes as a Language Assistant in Spain

LAST UPDATED APRIL 2013

This Monday was Tax Day in the U-S-of-A, so, uh, glad that’s over. Thankfully, because of the Internet (oh, Internet, where would we be without you?), I was able to file my taxes online and get a refund direct-deposited a month or so before my return was due, but it was a little trickier this year because I’m working as a language assistant in Spain. There’s a lot of misinformation out there on the forums and Facebook groups, but after sifting through all the recommendations and going straight to the horse’s mouth (i.e., the IRS website), I managed to come to a reasonably-safe conclusion about what to do with the meager income I gained as an auxiliar de conversación.

Day 093/365 - Tax Time Phat Cash! by Tony Case on Flickr

To make a long story short (see below), the program grant is taxable, and you declare what you were paid from October to December (probably 2.100€) in dollars ($2,730 at the current exchange rate of 1EUR to 1.30USD) as income, either as a scholarship or foreign earned income. Then the next year, you declare what you earned from January through May (probably 3.500€ / $4,550) and, if you renew, the fall paychecks from Year 2.

Before I get into the nitty-gritty, I need to put out a big disclaimer that I AM NOT AN ACCOUNTANT OR TAX LAWYER and will not be held liable for your tax returns and/or any investigations from the IRS, however unlikely they may be. What I’m writing on this blog is what I have determined best reflects the situation language assistants are in, and what best reduces my chances of getting audited for tax evasion. But since there are many opinions about how best to deal with the program’s income (especially since it’s so small), do your own research after reading this post!

Euros by Will Spaetzel on Flickr

There are two ways to categorize the money we get paid from Spain every month—money that the Spanish government officially considers a beca or scholarship/grant:

1) As a scholarship

If you declare the paychecks as “scholarships,” the IRS considers them taxable since

1. We aren’t “degree candidates” at a university
2. We’re using the scholarship to pay for room, board, and travel (and not tuition, fees, books, supplies, or equipment)
3. We’re receiving the scholarship as “payment for teaching, research, or other services required as a condition for receiving the scholarship.”

For more info, read this IRS document.

2) As Foreign Earned Income

If you declare the paychecks as “foreign earned income,” the IRS considers them taxable since you have to be living abroad for 330 days of the year (11 of 12 months) to get the Foreign Earned Income Exclusion. Now, I know lots of people end up staying in the country over the summer to work at academies and camps or do more travel, but if you go back home to the U.S. for more than a month, you lose your tax-free status. This doesn’t apply to first-years since you were only abroad for 3-4 months in the fall. But if you do end up staying through the whole summer, you would be eligible for the tax break in the following year.

For more info about the FEIE, read this article from the IRS.

There’s basically no way around avoiding it—the income is taxable. Yeah, it sucks, but you know what they say about death and taxes…

1040 - US Tax Return by 401(K) 2013 on Flickr

Now what? Well, there are a number of different scenarios that your personal tax situation could fall into, since lots of people opt to renew for a second year. Here are four possible ways your language assistant income might add up:

1. Scenario #1 = grant income from Year 1 fall: $2,730 / 2.100€ (October, November, & December paychecks)
2. Scenario #2 = grant income from Year 1 spring: $4,550 / 3.500€ (January, February, March, April, & May paychecks)
3. Scenario #3 = grant income from Year 1 spring & Year 2 fall: $7,280 / 5.600€ (January, February, March, April, May, October, November, & December paychecks)
4. Scenario #4 = grant income from Year 2 spring: $4,550 / 3.500€ (January, February, March, April, May paychecks)

Using these four scenarios, this is how your taxes would work out:

Option A (single, dependent)

This assumes you are single, your parents are claiming you as a dependent on their tax returns, and  you made no other income.

1. Your taxable income is $0 since the standard deduction ($5,950) cancels it out. You pay no federal taxes.
2. Your taxable income is $0 since the standard deduction ($5,950) cancels it out. You pay no federal taxes.
3. Your taxable income is $1,330 since the standard deduction ($5,950) reduces it. You pay $134 in federal taxes.***
4. Your taxable income is $0 since the standard deduction ($5,950) cancels it out. You pay no federal taxes.

***Scenario #3 going through Option A seems highly unlikely because the dependent has to have lived with the claimer for more than half the year and to have received more than half of their financial support from the claimer—impossible in the third scenario.

Option B (single, independent)

This assumes you are single, no one is claiming you as a dependent, and you made no other income.

1. Your taxable income is $0 since the standard deduction ($5,950) and your exemption ($3,800) cancel it out. You pay no federal taxes.
2. Your taxable income is $0 since the standard deduction ($5,950) and your exemption ($3,800) cancel it out. You pay no federal taxes.
3. Your taxable income is $0 since the standard deduction ($5,950) and your exemption ($3,800) cancel it out. You pay no federal taxes.
4. Your taxable income is $0 since the standard deduction ($5,950) and your exemption ($3,800) cancel it out. You pay no federal taxes.

Just declare it on your 1040 form and write “SCH” to the left if you’re declaring it as a scholarship in line 7. I think. Or maybe putting it as “foreign earned income” in line 21 for “Other income” would work, too? I’m not sure—and this is where things get tricky. I just let Turbo Tax handle the actual return-filling-out and entered my income in their foreign income section.

Euro coins by Sandeep Thukral on Flickr

So wahoo! You get off basically tax-free.

However.

If you made money at a summer job back home and got taxes taken out of your paycheck, then your refund might be a bit smaller than expected because there’s a chance your taxable income might be pushed above $0. This is what happened to me this year while declaring the fall of Year 1’s paychecks as in Scenario #1 of Option A. I still got a refund but it was about half of what it could have been since the language assistant paychecks increased the total amount I made.

Next year (tax year 2013), I’m expecting to be in Scenario 3, Option B since I will be renewing for Year 2. I am also going home for around three months this summer and will be working at a summer job, but my dad said he won’t be able to claim me as a dependent since I will be living on my own and providing the majority of my financial support for 8–9 months of the year. My summer job money and the auxiliar paychecks will probably push my taxable income above the standard deduction + exemption threshold, but the refund I would normally get from taxes taken out from my summer job will most likely cover the small amount of taxes owed.

TL;DR — Yes, the language assistant paychecks are taxable, but because they’re so small, you effectively pay no taxes on them since they get canceled out by standard deductions and exemptions. Still, do your homework on your own situation and declare the income so you don’t get audited.

If you’ve ever lived abroad and/or worked in a similar “scholarship” program, how have you done your taxes in the U.S.? Please add your helpful insights in the comments below!