Graduate students who are confused about filing federal and state income tax returns may find answers to their questions at next Thursday's tax workshop.

The workshop, sponsored by the Graduate Student Association, will be held at 7:30 Thursday in 101 Kern. Richard McCarl, associate dean of the graduate school, will speak about recent changes in federal tax laws and answer students' questions.

GSA Vice President Jim Leous said McCarl, who also heads the Office of Fellowships and Awards, was asked to attend because he is "one of the resident experts on the taxation of graduate students."

"We try to provide services that sort of make it easier to be a graduate student," Leous said, adding that "Almost every time I'm in (the GSA office) someone calls in with a question about taxes."

"We're not going to fill out people's forms for them," Leous said.

Leous suggested that the best sources for answers to tax questions are: the 1988 Tax Guide, published by GSA and available in Kern lobby; the Internal Revenue Service, 315 S. Allen St.; and the office of State Representative Lynn Herman, Suite 101, 315 S. Allen St.

Most of the confusion about what is and is not taxable for holders of fellowships and assistantships is caused by changes in federal tax laws since 1986, McCarl said.

"Prior to 1987, students could frequently exclude from income tax the stipend they received on assistantships (tuition only) and fellowships," he said.

The tax reforms made at the end of 1986 imposed taxes on the portion of fellowship and assistantship stipends used for living expenses, and money from assistantships for tuition, McCarl said.

However, McCarl said the University was able to use a section of the federal income tax law to continue to provide tax-free tuition for assistants.

This section was phased out at the end of 1987, so assistants once again had to pay tax on tuition benefits, McCarl said.

"This amounted to, in some cases, as much as $800 to $900 (in tax on tuition benefits alone)," McCarl added.

This was again reversed when Congress passed the 1988 Technical Correction Bill last October.

McCarl said the Graduate School continued to deduct tax on assistants' tuition until November or December, when it realized it was no longer necessary. The school returned all previously withheld taxes to students before Christmas.

He said the most recent changes were a result of pressure from the graduate community across the country, including Penn State administrators.

"It was a real case of democracy in action," McCarl added.

For federal income tax, which applies to all U.S. citizens and resident aliens, graduate students should be aware of the following information, said Tom Kirsch, manager of the State College H & R Block office:

-- Fellowships granted before Aug. 17, 1986 are generally non-taxable.

-- For fellowships granted after Aug. 16, 1986, usually the only amount that can be excluded is the portion used for tuition, fees, books, supplies and educational equipment.

-- Room, board and travel expenses are always taxable.

-- In reference to assistantships, generally, the portion of any grant that represents payment for teaching, research or other services is taxable. All income of this type needs to be reported as income, unless the student is a degree candidate who performs services that meet existing specifically stated requirements for the degree.

Graduate students should also be informed about specific state income tax criteria, Kirsch said, explaining that:

-- Fellowships are generally not taxable.

-- For assistantships, if stipends constitute compensation for services, they are considered taxable income. But if graduate assistants' activities are so closely supervised that they burden the institution, offsetting benefits of the arrangement, the stipend would be nontaxable.

Also, if duties of an assistantship are required as part of a degree program, the stipend is considered nontaxable, Kirsch said. To receive tax-exempt status when working within such a program, graduate students must attach a detailed description of the work for which they are getting granted, he said, adding that the letter should be written on paper with a Penn State letterhead and sent from the appropriate department head. Form letters are not valid, he said.