stipends and taxes

[Grimnir]

So I have been doing some research on the finances of graduate school and I am wondering how stipends are taxed? I was always told that they are taxed just like regular income (rates vary based upon state) but taxed nonetheless. Then I was reading about individuals whose stipend tax rate was extraordinarily low like 5%. I also found this link https://www.hrblock.com/tax-answers/services/jsp/article.jsp?article_id=66614 which says stipends in pursuit of a degree are not  taxable. So can anyone shed any light on this issue?

[Vene]

I have my pay stub in front of me right now, I have federal and state tax withheld as well as social security and medicare withholding. All said, my tax rate is a little over 4%. I am also married and have two allowances which means I have a lower tax rate than single students.

[Grimnir]

I have my pay stub in front of me right now, I have federal and state tax withheld as well as social security and medicare withholding. All said, my tax rate is a little over 4%. I am also married and have two allowances which means I have a lower tax rate than single students.

This is also very low...Is it because you are being paid from a fellowship rather than a stipend or do you have a large amount deducted for school expenses? I was estimating I would be paying around 22% like I do when I normally work...

[Vene]

This is also very low...Is it because you are being paid from a fellowship rather than a stipend or do you have a large amount deducted for school expenses? I was estimating I would be paying around 22% like I do when I normally work...

I have a TA position and I have no idea about any sort of deduction for school expenses as being a TA means my tuition and fees are completely covered. I filled out a W4 at the beginning of the semester and this is how it was processed.

[lewin]

In Canada it depends on whether your pay is classified as salary (e.g., as a teaching assistant) or fellowship funding (e.g., like a scholarship). The former is taxed, the latter not. Looks like you're in the U.S. but posting for others' information.

[Munashi]

For my stipend, I am paid through the school's payroll.  State and federal taxes (US) are taken out, but social security and medicare are not for me.  My grad insurance also comes out via payroll.

[Eigen]

For the US, both stipend pay and scholarship lay are taxed at the same rate as any other income. There are lots of previous threads on this, I'd suggest searching.

[Grimnir]

For the US, both stipend pay and scholarship lay are taxed at the same rate as any other income. There are lots of previous threads on this, I'd suggest searching.

 

That's where the info in my original post came from. Thanks.

Edited September 21, 2014 by Grimnir

[Eigen]

I will mention that HR Block will tell you the wrong thing. They don't seem to differentiate undergraduate scholarships and graduate fellowships/assistant ships.

The IRS has a whole publication devoted to them, however.

[TakeruK]

H&R Block said the right thing, but you just stopped reading too early!

 

Here's the full text:

Do I need to claim a stipend as income?

If your stipend was for study or research in the pursuit of a degree, the income won't be taxable. This applies to the extent the stipend amount paid your qualified tuition and related expenses.

However, the stipend income will be taxable if:

• The stipend was for general living expenses to a non-degree student.
• The grantor requires you to perform services in return for granting the stipend.
• The grantor requires you to pursue studies, research, or other activities mainly for the benefit of the grantor.
• The stipend has a condition that you perform past, present, or future services for the grantor.
• The services you perform are subject to the direction or supervision of the grantor.

 

 

 

So, if your tuition is $15,000 per year and you get a tuition waiver and a stipend of $20,000/year, then you only pay tax on the $20,000/year part (since the income from tuition waiver pays for tuition and is not taxable). The text also says "related expenses" and for grad students, this could be another few hundred dollars for textbooks...just keep the receipts!

 

And as for the person that said they were expecting 22% tax rate--this is higher because non-students pay FICA taxes but graduate students do not pay FICA taxes (Social Security and Medicaid). So this saves us about 6% or so in taxes.

 

For a student with a stipend (after tuition is paid) of around $20,000 to $30,000, the tax rate will be around 10% to 12%. If you are married and are able to file together (international students may not do this) then you can take advantage of lower tax rates! 

[juilletmercredi]

Stipends are definitely taxable.  Whether the taxes are taken out of your check depends on how the university pays you.

 

If the university hires you as a GRA and pays you a salary, then most likely you will have taxes taken out of your check.

 

If you are given a "stipend" as part of a fellowship or other arrangement, then you may have to withhold taxes yourself.  You are supposed to prepay estimated amounts quarterly in the U.S.  I never did, so I had to pay the penalty, which I think was something like $50 a year (it's a percentage of your income).

 

As an NYC resident my taxes were typically about 20% of my income (about 10ish% federal income taxes and the other 10ish% state + city).  I filed as a single student most of my time in grad school.