Paying taxes on PhD stipends

[sykora25]

Are stipends subject to federal, state, or FICA taxes?

[rachaelski]

There are some taxes taken out of them. Also, word of caution, when I had a summer stipend, my first term working as a GA, the school took very little taxes out of my pay. I guess they were looking at that being my whole yearly pay, therefore very little tax (like 5 dollars on a 1200 dollar check) would be collected. I am not sure. Hopefully, it doesn't happen again in the fall.

[timuralp]

To answer the poster's question, yes. Your stipend is income and taxed as such, both at the state and federal level. First google hit about this issue from the IRS should answer all your question about the federal taxes. Check with the state about the state tax laws.

Withholding also depends on how you get paid. If you're getting paid from a fellowship, taxes will not be withheld and you will need to file estimated quarterly taxes. You may also need to file those with the state. There is also a penalty for not doing so (some percentage of the would've been collected tax). Finally, there is some leeway with that, as I think you get a break for some period of time if you transitioned from having the taxes withheld to not having that.

If you see that not enough or too much tax is being taken out, you can adjust it by submitting an updated W4 form and adjusting the allowances.

Edited August 25, 2010 by timuralp

[sykora25]

thank you!

To answer the poster's question, yes. Your stipend is income and taxed as such, both at the state and federal level. First google hit about this issue from the IRS should answer all your question about the federal taxes. Check with the state about the state tax laws.

Withholding also depends on how you get paid. If you're getting paid from a fellowship, taxes will not be withheld and you will need to file estimated quarterly taxes. You may also need to file those with the state. There is also a penalty for not doing so (some percentage of the would've been collected tax). Finally, there is some leeway with that, as I think you get a break for some period of time if you transitioned from having the taxes withheld to not having that.

If you see that not enough or too much tax is being taken out, you can adjust it by submitting an updated W4 form and adjusting the allowances.

[Eigen]

This also includes any fellowships or scholarships.

Our school takes taxes out of stipends, but not fellowships- so those have to be reported as "self-employed" income.

Also keep in mind that if your school is not taking taxes out, or even just not taking sufficient taxes out, and you will owe more than $1000.00 by the end of the year that you MUST pay quarterly taxes.

If you get a W2 form with the stipend, that's easy.... If it's a fellowship/scholarship/grant, and it does not show on a W2, you simply report it as "additional" income with SCH written off to the side.

Off the top of my head, I can't think of any form of graduate financial support that is non-taxable, although I think there are a few very special cases.

Edited August 25, 2010 by Eigen

[Eigen]

There are some taxes taken out of them. Also, word of caution, when I had a summer stipend, my first term working as a GA, the school took very little taxes out of my pay. I guess they were looking at that being my whole yearly pay, therefore very little tax (like 5 dollars on a 1200 dollar check) would be collected. I am not sure. Hopefully, it doesn't happen again in the fall.

And better this than the opposite! At our school, they take out 2-4 times what we end up paying at the end of the year on our assistantships... Like $250 on a $1200 paycheck.

[rising_star]

State, federal, and local taxes are taken out. If you are a full-time student, you do not pay FICA.

[timuralp]

Off the top of my head, I can't think of any form of graduate financial support that is non-taxable, although I think there are a few very special cases.

As mentioned by IRS, fellowship funds used for paying tuition or for buying items directly related to the degree in progress (e.g. textbooks for classes) are tax exempt. The textbook case is not very special

State, federal, and local taxes are taken out. If you are a full-time student, you do not pay FICA.

As others have noted, and I know first hand, the university will not deduct taxes if the student is supported by a fellowship grant, i.e. the taxes are not taken out and it's up to the student to sort it out. I say it because it's not clear what the source of the stipend is and the person asking the question did not elaborate on that. It's good to be aware of the fact that it could turn out to be that way.

[Eigen]

As mentioned by IRS, fellowship funds used for paying tuition or for buying items directly related to the degree in progress (e.g. textbooks for classes) are tax exempt. The textbook case is not very special

Technically, the income is still taxable, you can just take a direct deduction of the items related to degree progress. Also note that only *some* textbooks are exempt, not all.

Additionally, remember that tuition waivers are considered "income", and must be reported, although the tuition can then be immediately deducted.

I was referring to some fellowships that are as a whole non-taxable income. These are quite rare, although they do exist.

Edited August 25, 2010 by Eigen

[timuralp]

Technically, the income is still taxable, you can just take a direct deduction of the items related to degree progress. Also note that only *some* textbooks are exempt, not all.

Additionally, remember that tuition waivers are considered "income", and must be reported, although the tuition can then be immediately deducted.

I was referring to some fellowships that are as a whole non-taxable income. These are quite rare, although they do exist.

Ok, at this point the argument degrades into semantics. I'm gonna go with the IRS quote on this:

"Example 1

Tammy Graves receives a $6,000 fellowship grant that is not designated for any specific use. Tammy is a degree candidate. She spends $5,500 for tuition and $500 for her personal expenses. Tammy is required to include $500 in income."

The wording is such that it implies the other $5,500 are not included in income and not reported and not taxable.

Here are some excerpts from the IRS about this:

"A scholarship or fellowship is tax free only if:

• You are a candidate for a degree at an eligible educational institution, and

• You use the scholarship or fellowship to pay qualified education expenses.

where the expenses are:

• Tuition and fees required to enroll at or attend an eligible educational institution, and

• Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction."

So, yes, there are tax free scholarships but none of the funds can be used for living expenses.

Then about what is taxable:

"If your scholarship or fellowship does not meet the requirements described earlier, it is taxable. The following amounts received may be taxable.

• Amounts used to pay expenses that do not qualify.

• Payments for services.

• Scholarship prizes."

This implies that if you receive a scholarship for $6,000, then spend $5,000 on tuition, the taxable amount is $1,000. A stipend for RA or TA would be payment for service. The exception for the payments for services is:

"You do not have to include in income part of any scholarship or fellowship that represents payment for teaching, research, or other services if you receive the amount under:

• The National Health Service Corps Scholarship Program, or

• The Armed Forces Health Professions Scholarship and Financial Assistance Program,

and you:

• Are a candidate for a degree at an eligible educational institution, and

• Use that part of the scholarship or fellowship to pay qualified education expenses."

Of course, if the taxable amount in the scholarship/fellowship is such that you don't have to file a return, none of it has to be reported.

It sounded like you were talking about tuition deduction, which applies to income. However, scholarship funds used to pay tuition aren't reported as income.

Edited August 25, 2010 by timuralp

[Eigen]

You're not getting my point.

There are some fellowships that are non-taxable no matter what you spend the money on. These are rare.

At the graduate level, very little can be counted as "income deductions", because, by and large, stipends and fellowships are in addition to tuition waivers.

And since a majority of school fees (your other main "income deduction" source) can't be properly counted, as well as the majority of graduate textbooks (you can only deduct books that are required for course attendance/registration), you will probably, at most, deduct 500-1000 of your fellowship stipend per semester.

You also can't consider GA's fellowships or scholarships, so they don't fall under the rules you just quoted from the IRS handbook. They are considered earned wages, and as such are strictly reported under income, with no commensurate reduction in income due to qualified "expenses". This will also depend on how the school reports it.

At least this was the way our school explains it to us.

Edited August 25, 2010 by Eigen

[timuralp]

You're not getting my point.

There are some fellowships that are non-taxable no matter what you spend the money on. These are rare.

What I'm saying is I can't find those described anywhere and the IRS handbook does not describe any exceptions to the rules that you're talking about. Can you give an example of such a fellowship?

You also can't consider GA's fellowships or scholarships, so they don't fall under the rules you just quoted from the IRS handbook. They are considered earned wages, and as such are strictly reported under income, with no commensurate reduction in income due to qualified "expenses". This will also depend on how the school reports it.

At least this was the way our school explains it to us.

If you mean TA or RA duties, then yes, they are classified as payment for services. However, if you are paid from a fellowship, like I was for the first year of graduate studies, the required textbooks and whatever else related to education expenses is not counted against income. That's what I was trying to point out. While you're right that $500-$1000 (probably more like $100-$500) per semester may be a small amount, but it still could save a few tens or a hundred bucks. To some it makes a difference.

[sykora25]

To clarify: I will be receiving a stipend in addition to a tuition exemption. No outside sources. However, I will be living in NYC, so for obvious reasons I would prefer to budget for taxes now rather than later.

As mentioned by IRS, fellowship funds used for paying tuition or for buying items directly related to the degree in progress (e.g. textbooks for classes) are tax exempt. The textbook case is not very special

As others have noted, and I know first hand, the university will not deduct taxes if the student is supported by a fellowship grant, i.e. the taxes are not taken out and it's up to the student to sort it out. I say it because it's not clear what the source of the stipend is and the person asking the question did not elaborate on that. It's good to be aware of the fact that it could turn out to be that way.

[sykora25]

And moreover, this is what I was told by the institution:

"Taxes are not deducted from stipend checks, unless you're an international student; there may be fees. You will be responsible for filing the

appropriate tax form at the end of the year."

To clarify: I will be receiving a stipend in addition to a tuition exemption. No outside sources. However, I will be living in NYC, so for obvious reasons I would prefer to budget for taxes now rather than later.

Edited August 25, 2010 by sykora25

[Eigen]

Make sure that you are filing quarterly taxes if you need to (if you will owe more than $1000 by the end of the year) the penalties for not doing so if you need to can be pretty steep.

As to examples of Fellowships that aren't taxed? They are usually government fellowships. I've heard of several states that give fellowships that are exempt from state taxes, for sure. They are not mentioned in the IRS handbook, no. But if you aren't sure, your department of university can very easily answer whether they are taxable or non-taxable fellowships.

And my point about the education expenses is that the IRS takes a very narrow view of education expenses. More than half of my textbooks my first year were not counted as "valid" education expenses because they were not required for enrollment in a class. Similarly, university "fees", such as Student Health service fees, Fitness center fees, or any other assessed fee may or many not be considered "valid". Most of mine were not, at least according to the IRS handbook.

And yes, GA is a general term for graduate assistantship, and consists of either a TA or RA position, as opposed to a fellowship.

[timuralp]

To clarify: I will be receiving a stipend in addition to a tuition exemption. No outside sources. However, I will be living in NYC, so for obvious reasons I would prefer to budget for taxes now rather than later.

Are you gonna be receiving a stipend with no additional stipulations or is it for being a TA or RA?

Make sure that you are filing quarterly taxes if you need to (if you will owe more than $1000 by the end of the year) the penalties for not doing so if you need to can be pretty steep.

Make sure to check the NY state tax laws about this as well. Also, if you had no tax liability in the previous year, you don't have to file estimated taxes for this year. More here

As to examples of Fellowships that aren't taxed? They are usually government fellowships. I've heard of several states that give fellowships that are exempt from state taxes, for sure. They are not mentioned in the IRS handbook, no. But if you aren't sure, your department of university can very easily answer whether they are taxable or non-taxable fellowships.

So... in the end I still can't verify if these exist at all and you can't provide an example of one and the IRS seems to be unaware of such things.

And my point about the education expenses is that the IRS takes a very narrow view of education expenses. More than half of my textbooks my first year were not counted as "valid" education expenses because they were not required for enrollment in a class. Similarly, university "fees", such as Student Health service fees, Fitness center fees, or any other assessed fee may or many not be considered "valid". Most of mine were not, at least according to the IRS handbook.

And yes, GA is a general term for graduate assistantship, and consists of either a TA or RA position, as opposed to a fellowship.

Yes, it does take a narrow view, however required textbooks could amount to a few hundred bucks each semester. Again, that's what I was trying to point out, as saving a few tens or hundred dollars in the end could make a difference to some.

By the way, I was called a GA, or GSRA in particular, but because my fellowship did not require TA/RA duties, it was not classified as payment for services.

Edited August 25, 2010 by timuralp

[Eigen]

I'll see if I can dig up some of the names for you, I generally don't keep track of the specific names of my friends fellowships. I do know people on non-taxable fellowships, and I have been told by my department that they exist as well.

And yes, you don't have to file if you had no liability last year. As Tim said, you also need to check NY tax laws in this area, they might be different. If you did pay taxes last year, however, you will need to worry about estimated taxes this year. The IRS has a calculator that can help you with that.

My point wasn't ever that you should not try to get whatever reductions you can on your income, but rather that you need to be careful what you use for those reductions. A lot of things that you would commonly think count, will not.

It's interesting that you had a fellowship and were classified GSRA, everyone I've seen funded through a fellowship is classified GSRF- Graduate Student Research Fellow as opposed to a Graduate Student Research Assistant. By and large, an assistantship is distinct from a fellowship, and graduate fellows are not called graduate assistants.

[gsams]

If you will only be getting $4000.00 in fellowship money by December 31st then do you have to file quarterly?

[Eigen]

Filing quarterly is all about how much you owe vs. how much you've paid in withholdings. It also depends on any other jobs/income throughout the year.

The fastest way is to use Turbotaxes estimator online, and see what it gives you for estimated 2010 taxes based on everything else. If you owe more than $1000, and filed taxes last year, then you more than likely need to file quarterly.

Unless you've had other significant income for this year, I doubt $4000 in stipend will be enough... I really only know the married filing jointly stats, and that requires around $17k to owe taxes.

[timuralp]

If you will only be getting $4000.00 in fellowship money by December 31st then do you have to file quarterly?

Is your school starting after September 1st? The reason being that it's damn close to it and the filing schedule is such that 3rd quarter taxes are due September 15th and the last quarter starts September 1st, with the payment being due January 15th. If you haven't filed them yet, this year and didn't make much money in the third quarter, you can just not worry about it, as it already doesn't make much difference.

For reference, if your income after applying the standard deduction ($5,500 last year) is less than $8,000 you do not owe any tax.

I'll see if I can dig up some of the names for you, I generally don't keep track of the specific names of my friends fellowships. I do know people on non-taxable fellowships, and I have been told by my department that they exist as well.

Thank you. I'm actually really curious at this point because I couldn't find any references to such magical fellowships.

My point wasn't ever that you should not try to get whatever reductions you can on your income, but rather that you need to be careful what you use for those reductions. A lot of things that you would commonly think count, will not.

Fair enough. Just in sciences, I know the books can be expensive and even taking 2 courses per semester, that could be $400-$600 for the year, or up to $90 saved in tax if subtracted from income. So I just wanted to make sure people knew about that.

It's interesting that you had a fellowship and were classified GSRA, everyone I've seen funded through a fellowship is classified GSRF- Graduate Student Research Fellow as opposed to a Graduate Student Research Assistant. By and large, an assistantship is distinct from a fellowship, and graduate fellows are not called graduate assistants.

Yep, you're right. I can't pull up exactly what they called me. The GSRA could've been just the departmental designation, as I was working on research with a professor. The money, however, came out of the "Student Refund Group" (whatever that is) and was paid once in bulk for the whole semester. So, it was definitely classified differently for tax purposes.

[Eigen]

That's interesting.

Even those of us on fellowships get our stipends dispersed biweekly throughout the year. Ours just doesn't get taxes taken out of it.

And very true on the books. But then thankfully, at least in the physical sciences, books are almost completely unnecessary at the graduate level :-D

[sykora25]

I'm actually just starting the program this year, and I don't have to serve as a TA until next year.

Are you gonna be receiving a stipend with no additional stipulations or is it for being a TA or RA?

Make sure to check the NY state tax laws about this as well. Also, if you had no tax liability in the previous year, you don't have to file estimated taxes for this year. More here

So... in the end I still can't verify if these exist at all and you can't provide an example of one and the IRS seems to be unaware of such things.

Yes, it does take a narrow view, however required textbooks could amount to a few hundred bucks each semester. Again, that's what I was trying to point out, as saving a few tens or hundred dollars in the end could make a difference to some.

By the way, I was called a GA, or GSRA in particular, but because my fellowship did not require TA/RA duties, it was not classified as payment for services.

Edited August 26, 2010 by sykora25

[rising_star]

As others have noted, and I know first hand, the university will not deduct taxes if the student is supported by a fellowship grant, i.e. the taxes are not taken out and it's up to the student to sort it out. I say it because it's not clear what the source of the stipend is and the person asking the question did not elaborate on that. It's good to be aware of the fact that it could turn out to be that way.

Even those of us on fellowships get our stipends dispersed biweekly throughout the year. Ours just doesn't get taxes taken out of it.

This must vary by university. I have twice had fellowships as a graduate student and have had state and federal taxes deducted from the amount I received. This, btw, was at two universities in different states. No paying estimated taxes for me! One of those fellowships paid out monthly and the other in a lump sum once each semester. I guess it just depends on how your university administers fellowships.

In any event, I'm also interested to hear about tax-free fellowships as everyone I know with one has to pay taxes on theirs. Maybe it's some magical thing that exists for physical scientists and no one else?

[Eigen]

Either that, or it's also possible it's just perpetual misinformation.

I know originally (8 years ago) the fellowship I'm on was *legitimately* tax free....At least to the student. It was something about either the state or the department paying the taxes on it before it was passed on to the students.

It is no longer tax free (yay estimated taxes!), but it took quite a while to get that through peoples heads, especially in the overlap period when some were on the taxable version and some on the non-taxable one (It's a 4 year fellowship).

I know that I got told (until I made it all the way up to the deans office) that my fellowship was non-taxable.

Perhaps some of the people I hear reporting non-taxable fellowships just haven't researched it quite far enough.

[timuralp]

You can add on a tax of 2.5% of your income or $695, whichever is greater, if Obamacare is fully implemented by 2016, and you do not have health insurance by this time!

You should look up the definition of a troll. Never mind that most university PhD stipend packages include health insurance.