Are fellowships taxed?

[Postbib Yeshuist]

I've been offered a fellowship that covers full tuition and fees plus a $16k annual stipend (technically needs to be renewed each year). What can I expect to be taxed? I will only see the $16k as actual income, but the tuition & fees aren't technically labelled as a "scholarship."

I am not looking for "legally binding" answers, so to speak, just general experiences, idea, places to look, etc.

[Russophile]

Usually tuition and fees are deducted out of the money on which you pay taxes. Your university will issue you a Form 1098-T which will indicate your paid tuition and the amount of scholarship and grants you received. Taxes are only paid on the difference. At least that is how it works with undergrad, I assume graduate school would be similar.

[oldlady]

This came off of the CUNY website:

Financial aid income is taxable for U.S. citizens, permanent residents, and most international students (some nations have treaties with the U.S. that exempt students from those countries from some U.S. income tax liabilities). Under current U.S. income tax law, nonservice-connected financial aid income used for tuition, books, supplies, and equipment is not taxable. Loans are not income and are therefore not taxable. Please note that tax laws are subject to change. The Office of Financial Aid does not offer income tax counseling of any kind. Questions on income tax liability, filing status, reporting income, and tax treaties should be addressed to the United States Internal Revenue Service.Under current U.S. law, Federal Work-Study awards are not subject to Social Security Tax (F.I.C.A.) withholding during periods of enrollment.

[Postbib Yeshuist]

This came off of the CUNY website:

Financial aid income is taxable for U.S. citizens, permanent residents, and most international students (some nations have treaties with the U.S. that exempt students from those countries from some U.S. income tax liabilities). Under current U.S. income tax law, nonservice-connected financial aid income used for tuition, books, supplies, and equipment is not taxable. Loans are not income and are therefore not taxable. Please note that tax laws are subject to change. The Office of Financial Aid does not offer income tax counseling of any kind. Questions on income tax liability, filing status, reporting income, and tax treaties should be addressed to the United States Internal Revenue Service.Under current U.S. law, Federal Work-Study awards are not subject to Social Security Tax (F.I.C.A.) withholding during periods of enrollment.

Thanks. That gives me something to go off. I'll be going over it in detail with the FinAid dept, of course, but I just wanted to get a sense as I create a mental picture of what next year will be like financially.

[weninger]

Yes, fellowships are taxed at the normal rate. For example, I have the NDSEG, which pays (say) 1000 dollars per month (actually quote more). My pay check is 1000 dollars but at the end of the year I will owe about 10% of my wages to the federal government and about 8-9% to my state.

Make sure you make estimated tax payments or (in my case) have your wife deduct extra amounts from her paycheck to make up for it.

Good luck.

[sciencegal]

To give you an idea - I had ~25K in fellowship monies one year that did not go toward "qualified education expenses" (e.g., tuition, fees, etc paid directly to the school) and I owed ~5K in federal taxes. There were also significant state taxes. This fellowship was on top of my RA stipend. It's tricky figuring out that you have to enter it into wages, there is a document 690 that details what gets taxed and what doesn't and where you enter it on your taxes.

Edit: If your stipend is in the form of a RA position your tax will get taken out automatically. If it's 16K for 12 months you will probably take home around 1200 a month after taxes (likely a little more depending on the state).As others have said the money for tuition and fees paid directly to the school are not taxed.

Edited April 4, 2010 by sciencegal

[Interdisciplinarity]

This is probably more information than you're looking for right now, but maybe it will help somebody else. Like what the CUNY website says, my school doesn't give any tax advice, so I had to figure it out on my own. I had about $17k in taxable stipend this year, and it was my only income, so I only pay around $800 in federal taxes. My state taxes are weird because I moved in the middle of the year, so can't help you there except to say that you should definitely check their tax laws for any information about scholarship treatment. I was planning to remain a resident of State A (home state) until I realized that State B (grad school state) taxes any income made in that state, including scholarships, and State A doesn't give residents a break for tax paid on scholarships to another state. State C (undergrad state), however, doesn't tax non-residents on scholarship income made in the state.

Also, you can't necessarily rely on the 1098-T for calculating the amount of income that you report to the IRS. My university, for example, does not include my stipend in the total of the scholarship money that I received, and also omits certain non-taxable fees from the tuition total. So calculating the difference would not give me an accurate number for my income. As far as I've been able to figure out, the point of this form is to document your eligibility for education credits, which give you a tax break for amounts that you pay in tuition and fees. But if you're already having your tuition and (required education-related) fees paid for you through a scholarship, they count as non-taxable income, which you don't report in the first place (as other people have said), so you don't need an education credit.

Look on the IRS website for publication 970 - "Tax Benefits for Higher Education." The first section explains what portion of scholarship income you report in the first place. The second section explain the various education credits. I also discovered that you can get TurboTax and other preparation software for free through the IRS website if you make less than a certain amount per year. I can't remember the amount, but it was well above $20k.

Edited April 5, 2010 by Interdisciplinarity