taxes and assistantships

[kamay]

do they take federal taxes out of your assistantship? What about Medicare and Social Security? What's it like at the end of the year when you file with the IRS? Do you get most of it back since you're making so little anyway?

[Guest]

I get no taxes taken out of my fellowship.

I have no idea if this is normative or not.

[rising_star]

They might not take it out but that doesn't mean you don't have to pay them.

IE, I have to report any scholarship money that I get that now as an undergrad that pays for more than tuition. I have a scholarship that covers room and half-board, which I have to report to the IRS. They even give me a tax form, sorry can't remember the name of it, to use. And then on my 1040-EZ I have to write "sch" out to the side of the income to let the IRS know it's a scholarship (which I presume means I can't efile). I'm a bit unsure of how that whole thing works because I've never had to do it before (this is the first year my school sent the amount on an official IRS document and such).

I'd imagine that you have to pay some taxes out of an assistantship/fellowship because it's income you're using for noneducational expenses.

[Guest]

If you receive an assistantship (i.e. funding attached to work obligations, like TAing) then yes, you will pay taxes. I lose roughly $400 per month in this way (from a stipend of about $2000 per month), through a combination of federal and local taxes, though I do not pay MediCare since I have health insurance as part of my funding package. This is taken from my stipend automatically each month.

I am told that I will get a substantial portion of this back at the end of the tax year through the IRS, but the tax office at my university is not that helpful and has failed to give me a definitive indication of exactly how much.

[Guest guest]

from the IRS website:

Taxable Scholarships and Fellowships

If you received a scholarship or fellowship, all or part of it may be taxable, even if you did not receive a Form W-2. Generally, the entire amount is taxable if you are not a candidate for a degree.

If you are a candidate for a degree, you generally can exclude from income that part of the grant used for:

Tuition and fees required for enrollment or attendance, or

Fees, books, supplies, and equipment required for your courses.

You cannot exclude from income any part of the grant used for other purposes, such as room and board.

A scholarship generally is an amount paid for the benefit of a student at an educational institution to aid in the pursuit of studies. The student may be in either a graduate or an undergraduate program.

A fellowship grant generally is an amount paid for the benefit of an individual to aid in the pursuit of study or research.

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.

Example 2

Ursula Harris, a degree candidate, receives a $2,000 scholarship, with $1,000 specifically designated for tuition and $1,000 specifically designated for living expenses. Her tuition is $1,600. She may exclude $1,000 from income, but the other $1,000 designated for living expenses is taxable and must be included in income.

Payment for Services

All payments you receive for past, present, or future services must be included in income. This is true even if the services are a condition of receiving the grant or are required of all candidates for the degree.

Example

Gary Thomas receives a scholarship of $2,500 for the spring semester. As a condition of receiving the scholarship, he must serve as a part-time teaching assistant. Of the $2,500 scholarship, $1,000 represents payment for his services. Gary is a degree candidate, and his tuition is $1,600. He can exclude $1,500 from income as a qualified scholarship. The remaining $1,000, representing payment for his services, is taxable.

Fulbright Students and Researchers

A Fulbright grant is generally treated as any other scholarship or fellowship in figuring how much of the grant can be excluded. If you receive a Fulbright grant for lecturing or teaching, it is payment for services and subject to tax.

Pell Grants, Supplemental Educational Opportunity Grants, and Grants to States for State Student Incentives. These grants are nontaxable scholarships to the extent used for tuition and course-related expenses during the grant period.

Reduced Tuition

You may be entitled to reduced tuition because you or one of your parents is or was an employee of the school. If so, the amount of the reduction is not taxable so long as the tuition is for education below the graduate level. (But see Graduate student exception, next.) The reduced tuition program must not favor any highly paid employee. The reduced tuition is taxable if it represents payment for your services.

Graduate Student Exception

Tax-free treatment of reduced tuition can also apply to a graduate student who performs teaching or research activities at an educational institution. The qualified tuition reduction must be for education furnished by that institution and not represent payment for services.

Contest prizes

Scholarship prizes won in a contest are not scholarships or fellowships if you do not have to use the prizes for your education. If you can use the prize for any purpose, the entire amount is taxable.

Qualified State Tuition Program

If you receive distributions from a qualified state tuition program, only the amount that is more than the amount contributed to the program is taxable. Part of the benefits may qualify as a nontaxable scholarship or fellowship (for example, matching-grant amounts paid under the program to a degree candidate). Other benefits are partly a nontaxable return of the contributions made to the program on your behalf (for example, by your parents). You must include in your income the part of the benefits that is neither a nontaxable scholarship or fellowship nor a return of contributions. For more information about qualified state tuition programs, see Publication 525 , Taxable and Nontaxable Income, but for more information on a specific program, contact the state or agency that established and maintains it.

Other Grants or Assistance

If you are not sure whether your grant qualifies as a scholarship or fellowship, ask the person who made the grant.

Additional information

See Publication 970, Tax Benefits for Education, for more information on how much of your scholarship or fellowship is taxable.

How To Report

If you file Form 1040EZ, include the taxable amount of your scholarship or fellowship on line 1. Print "SCH" and any taxable amount not reported on a W-2 form in the space to the right of the words "W-2 form(s)" on line 1.

If you file Form 1040A or Form 1040, include the taxable amount on line 7. Print "SCH" and any taxable amount not reported on a W-2 form in the space to the left of line 7 on Form 1040A or on the dotted line next to line 7 on Form 1040.