is a fellowship taxable?

[iowaguy]

OK, I know that TA/RA stipends are taxable (they are payment for services, like a job), but are fellowships?  I received a fellowship award letter, and the Grad School states that my award is taxable (however the income tax withholding is optional, so this sounded a little strange to me).  Are any and all grad school fellowships taxable?  Thanks!

[pears]

it depends on the fellowship: some are taxable, some are tax-free, and some are partially taxable. seems to depend on a variety of (somewhat opaque) factors.

 

i would use whatever contact info was on the award letter to just ask for a full explanation- it'll definitely save all parties involved confusion and hassle down the road, and i'm sure they understand any/all questions you'll have about it. if they've awarded fellowships before, they probably know exactly what kinds of questions their recipients will have, and i bet they'll appreciate that you're being thorough and responsible! or, if you can't get a hold of them, you can always try to get in touch with an h & r block sort of place to see if they can answer your question. 

 

congrats on the fellowship!   sorry i couldn't be more helpful, but it really does seem to just depend on the fellowship.. case-by-case basis i guess. 

[Eigen]

The vast majority of the time, your fellowship is taxable.

 

Most of the time, the schools was their hands of it, and say something to the effect of "You are responsible for paying whatever taxes may or may not be owed on this money, as defined in the tax code".

 

Also, H&R Block seems wildly inconsistent on this.

 

I have heard of a few fellowships in special situations which are non-taxable, but I would say they are the exception rather than the rule.

[RandiZ]

Definitely check with an accountant. But, I believe that money used for tuition, fees and books is not taxable. Anything over that is taxable. However, do not misinterpret non-taxable as the same thing as you don't have to report it. You have to report all income if it is over a certain amount of money. I'll end where I began - check with an accountant.

[Eigen]

I'll add:

 

Both of the fellowships I've had were listed by my university as non-taxable.

 

What they meant by this wasn't that I didn't need to report them as income and pay the appropriate tax, but that they didn't consider them a wage, and weren't going to withhold taxes from them or issue me a W-2 for them.

 

It meant that they got reported as "other" income on my taxes, with SCH in the margin.

 

The IRS has an entire booklet devoted to scholarships and fellowships.

 

Indeed, money spent on tuition, (some) fees & (some) books is non-taxable- you can either count those as education expenses, and deduct accordingly, or, if it's a fellowship, you can reduce the amount of the fellowship by the amount spent on those items.

 

Tuition waiver's count as a fellowship too, just one that's offset by an exactly equal amount of tuition.

[woosah]

I had these same questions, and asked one of the programs I'm applying to. This is the information they provide to their fellowship recipients:

 

     

http://www.irs.gov/taxtopics/tc421.html

http://www.irs.gov/publications/p970/ch01.html

Edited February 19, 2013 by woosah

[Eigen]

Yup! That's the IRS publication I was referring to.

 

It's actually fairly straightforward.

[TakeruK]

Definitely check with an accountant. But, I believe that money used for tuition, fees and books is not taxable. Anything over that is taxable. However, do not misinterpret non-taxable as the same thing as you don't have to report it. You have to report all income if it is over a certain amount of money. I'll end where I began - check with an accountant.

 

My school issues each of us a letter a few weeks ago that explained how much we got paid and whether the money was taxable. My internal fellowship was taxable, the letter said "You were paid $X and you provided no services" and my monthly paycheques had tax deductions (I'll get it all back this year though since I was only a US grad student for 3 months in the 2012 tax year).

 

The letter also says that you can claim tax credits for "expenses related to COURSES that you can provide evidence for". So I guess if you had bought textbooks and kept all the receipts properly, you can claim them!

[juilletmercredi]

YES.

Some people will tell you that they are not.  In virtually all cases, THEY ARE.  Any amount that is not used to pay for tuition and required fees (so your entire stipend) is taxable.  Furthermore, sometimes your university will not withhold taxes so you will have to withhold them yourself and pay them in April.  Just because they don't withhold the money doesn't mean you don't owe!

I also would not recommend getting your taxes done by one of those H&R Block, Jackson Hewitt, etc. places unless you are referred by a fellow grad student who got their taxes done there.  One year I went to H&R Block to get my taxes done thinking they might save me a few hundred dollars (I typically owe about $4,000-5,000 on my NSF every year).  Nope, I ended up paying the exact same amount in taxes and I had to pay H&R Block $240 for the pleasure of telling me so.  (This doesn't include a professional tax accountant, though.)

I've also found that everyone is utterly unhelpful.  The financial aid office doesn't want to run the risk of giving you the wrong information, so they give very little out, and NSF is not helpful with it either.  I've heard the NIH also is not helpful.

[Eigen]

That said, the IRS has been surprisingly helpful when I've had questions. 

 

And they actually know. 

 

I've both gone to our local office, and called the national hotline. 

[Deadmeat]

Graduate Assistantships if registered for a certain number of credits are exempt from FICA. So that's like what 6% savings in pay.