Are Graduate Student Stipends Taxable?

Something that came up recently in a conversation I was having was that graduate student stipends are not taxable when it is strictly a stipend or a fellowship. Basically, if you are not teaching or doing some sort of assistantship while attending graduate school, the money is given to you tax free. While this is partially true, from everything that I have found online and from the IRS you DO in fact have to pay taxes on this income. At most universities there is a difference between fellowships and stipends that include a mandatory teaching role and those that do not, but you will have to pay taxes on both. I thought with tax season upon us that this would be a good topic to discuss and one that was interesting to research.

At the federal level, it seems that all fellowships, assistantships, and stipends are considered taxable income by the IRS (Source). So why would someone believe that if you have a fellowship that it would not be taxed? It’s actually a fairly easy mistake to make as most universities do not withhold any taxes at the time of payment. The graduate student is expected to report this income to the IRS and make tax payments by themselves. I can easily see this being interpreted as tax free income if you are not told otherwise!

At most universities when you have an assistantship (graduate school acceptance that requires some sort of mandatory teaching as part of your stipend agreement), the taxes are withheld from each paycheck. The university will also report this income to the IRS and you will receive a W2 and go about paying your taxes as your normally would.

So why the discrepancy between the two? Prior to 1985, fellowships that did not include any sort of mandatory teaching or “employment” by the school were considered not taxable. Then if you compound the fact that schools do not report this income to the IRS and do not withhold any taxes from your pay. If you hear from a friend of a friend that they didn’t pay taxes all throughout graduate school, you think that it’s great news. Nothing happened to them, so why should I pay taxes?

It doesn’t seem worth the hassle of triggering an audit and paying a penalty to the IRS. There’s also the fact that it would be seen as immoral. Most graduate students are probably barely scraping by on a stipend, so squeezing out another few hundred dollars could be huge – so I can see why the urge to do this would be strong. Let’s also not forget that if you are attending a public university is the fact that those same taxes could very well be funding your own fellowship!

So please remember that all graduate school stipends, fellowships, and assistantships are taxable income. The only thing that differs between the types of funding is how the taxes are being collected.

I am not a tax professional and this is my own opinion based on research that I have done. Make sure you always do your own research and talk to a professional if necessary if you have any questions. Feel free to leave any comments if you have any further experience or knowledge to contribute to this subject as well.

Here is some additional tax information on graduate stipends from some major universities:

Cornell University
Massachusetts Institute of Technology
University of North Carolina

photo credit: IRS 1040 Tax Form Being Filled Out via photopin (license)

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