Taxes on Grad School $

[rf1979]

I received funding that consists of a fellowship the first year and then TAships in subsequent years for my PHD program. My question is, how are taxes dealt with? If my fellowship is $18,000 for the first year, do they take out for federal, state and local taxes? What about when I get paid as a TA later? Thanks in advance for your answers!

[newms]

I'm not 100% sure about the fellowship, but they definitely will take out taxes for your TA money. See a related discussion here:

[UrbanWonk]

I ran into this with undergrad (full ride); not sure if it's the same. The school can report all money paid to you as taxable income excluding the cost of tuition (irrelevant if you've a tuition waiver). Stipends used by you directly to purchase books can also be deducted. But housing, meal, and other stipends are definitely taxable...and push you into an unfortunate "income" bracket.

[LJK]

If you are on a fellowship that is directly from a federal agency like NIH or NSF, it *could* be tax-free depending on how the money is setup. I know a grad student who has such a fellowship now. But generally, as people have been saying, grad money is taxable.

[lewin]

I have no idea how the U.S. tax system works, but in Canada we get tax credits for being a student. There is a form one can fill out at the beginning of the year (TD1) where you list the credits you anticipate receiving. As a student, you'd expect a lot of credits and end up owing no tax. Your employer (the university) then would reduce the amount of tax they deduct. No tax return later, but no deductions during the year.

Is there something like that in the U.S. ?

[Nurse Wretched]

No.

For a normal job, you choose the amount of withholding from your check based on the number of exemptions you anticipate. At the end of the year, you either withheld too much (yay! Tax refund!), too little (boo! Pay tax!) or just right (mystical state I have never achieved in 19 years of filing taxes). The tax code is horrifically complicated, and while there is a small tax credit for postsecondary education, it's really minimal. If you have more than one job or if you have kids or a house, it gets complicated fast. Most students, though, will probably qualify to take the standard deduction instead of itemizing.

[Nurse Wretched]

In response to the OP, this varies from school to school. Many will take out taxes (and student employment is exempt from FICA), others don't. In almost every case though, your stipend is given as a gross, not net, amount. Michigan does not automatically take out taxes, for example, so most people I know make quarterly estimated tax payments.

[Ennue]

Wow, I could have created this topic, it is exactly what I was wondering.

Does anybody know about this situation for foreign students? What percentage should I deduct from the fellowship/stipend amount? It is roughly the same amount as the OP, and tuition.

In my home country taxes range from 30 to 50 percent, but from what I understand in the US the percentage is (much?) lower...

[Nurse Wretched]

Wow, I could have created this topic, it is exactly what I was wondering.

Does anybody know about this situation for foreign students? What percentage should I deduct from the fellowship/stipend amount? It is roughly the same amount as the OP, and tuition.

In my home country taxes range from 30 to 50 percent, but from what I understand in the US the percentage is (much?) lower...

The percentage can be much lower. I own a house and have two children, and file as head of household. Between these deductions, my effective tax rate was 0% last year. That said, I did still pay Social Security and Medicare tax, but it was still around 3% of my gross salary.

[lewin]

No.

For a normal job, you choose the amount of withholding from your check based on the number of exemptions you anticipate. At the end of the year, you either withheld too much (yay! Tax refund!), too little (boo! Pay tax!) or just right (mystical state I have never achieved in 19 years of filing taxes). The tax code is horrifically complicated, and while there is a small tax credit for postsecondary education, it's really minimal. If you have more than one job or if you have kids or a house, it gets complicated fast. Most students, though, will probably qualify to take the standard deduction instead of itemizing.

That sounds similar, except here you fill out a specific form (the TD1) listing your anticipated exemptions (here called credits or deductions) and the company's payroll department actually calculates how much to withhold. Tuition is the bulk of the tax credit but with a tuition waiver that wouldn't apply.

[lewin]

Wow, I could have created this topic, it is exactly what I was wondering.

Does anybody know about this situation for foreign students? What percentage should I deduct from the fellowship/stipend amount? It is roughly the same amount as the OP, and tuition.

In my home country taxes range from 30 to 50 percent, but from what I understand in the US the percentage is (much?) lower...

You should check with an expert about whether your country has a tax treaty with the U.S., and whether it taxes based on citizenship or residency. You may have to file returns in both countries, and it could get quite complicated.

[dmf]

I know that in the fellowship letter I received, it stated that it was taxable income, but nothing would be withheld. I have to take care of all of that on my own (calculate how much I'll own and set it aside). This sounds like a huge pain to me and am wondering if it's worth the extra $1000 the fellowship gives me over the standard department GAship where they take care of tax stuff for you.

Also, if my fellowship covers tuition (instead of it being waived), is this counted as income or immediately deducted?

All I know is that this is going to be a very confusing tax year for me! 1/2 year salary from current job, 1/2 year from grad fellowship, getting married partway through the year, moving to a different state for employment purposes....

[lewin]

I know that in the fellowship letter I received, it stated that it was taxable income, but nothing would be withheld. I have to take care of all of that on my own (calculate how much I'll own and set it aside). This sounds like a huge pain to me and am wondering if it's worth the extra $1000 the fellowship gives me over the standard department GAship where they take care of tax stuff for you.

Also, if my fellowship covers tuition (instead of it being waived), is this counted as income or immediately deducted?

All I know is that this is going to be a very confusing tax year for me! 1/2 year salary from current job, 1/2 year from grad fellowship, getting married partway through the year, moving to a different state for employment purposes....

Seriously? An extra thousand dollars in exchange for doing your own deductions? Do it! If you don't want to calculate anything, save 20 or 25% off the top and you'll probably be fine. If at the end of the year that's too much then you've got some nice savings.

[dmf]

Seriously? An extra thousand dollars in exchange for doing your own deductions? Do it! If you don't want to calculate anything, save 20 or 25% off the top and you'll probably be fine. If at the end of the year that's too much then you've got some nice savings.

I know, I know... And I'm not even that bad at figuring this kind of thing out (always do my own taxes etc). I'm just really bad at sitting down and getting around to it. I do have an easy way to take $X out of my checking account every month and divert to savings. Probably the easiest way to deal with it. And this way, if you overestimate "withholdings," you get the interest instead of Uncle Sam!

Anyone know if we're taxed only on the stipend or the full fellowship amount (tuition, fees, etc)?

[robot_hamster]

They take state income tax out of mine. I believe my stipend is FICA exempt, so I don't have to pay into social security and whatnot. Last time I received a stipend (while I was an undergrad), I never filled anything out and just got a 1099-Misc form during tax season. It was listed as Other Income (Box 3), so I didn't have to pay in for social security then either.

[Eigen]

Most fellowships you will have to file yourself- which thankfully means you're FICA exempt.

However, if you will owe more than $1000 in taxes at the end of the year, you will have to pay quarterly "estimated taxes" or be left with what can be a pretty hefty penalty at the end of the year when you file. I forget where the breakpoint is for this, but you will probably need to file estimated taxes on most fellowships, assuming you're single/no dependents. From what I recall, none of the national fellowships are tax free... At least none of the major ones. There *might* be some armed forces fellowships that are non-taxable. Last time this discussion came up, no one was able to come up with a single example of a non-taxable fellowship.

That said, a lot of students dodge paying their taxes on fellowships, since they are self-reported income (don't show on a W2), and the IRS has to subpoena school records to get the fellowship disbursement information.

Scholarships/fellowships are filed as "other" income in the same place you would file a cash gift, and you write "SCH" off to the side of it. There's an entire IRS publication devoted to Scholarships, Fellowships and Education.