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How much are stipends taxed?


Prometheus_Econ

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Its not terrible because you claim the standard deduction for 5 k. The next 7 k is taxed at 10% and the rest will most likely be taxed at 15%. In addition, I understand that there is no withholding, meaning you can use and earn interest on the money before paying it to the government as late as possible. You don't need to pay social security or medicare as I understand it but I could be wrong. This is just federal of course but state shouldn't be bad.

 

Your federal tax rate should be about 10% or less depending on the value of your stipend.

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i think its around 10-15 percent range..however, there are countries which have tax treaties with the united states that dont require their students to pay the taxes...india and china are the two countries that i know, which have this tax treaty with United States
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I think maybe it depends on the type of stipend. In my MS program, I'm on both a fellowship and an assistantship, both of which pay a stipend. The fellowship stipend is not taxed, while the assistantship stipend is. Taxes are witheld from the assistantship stipend, but not for social security. I suppose the assistantship stipend is treated differently because I have to work for it.
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You are not taxed on educational expenses - so you could potentially write-off money spent on books, software you purchase, money you spend on conference trips, etc. You have to pay taxes on all income used for room & board type expenses. It's suggested that most graduate students file taxes on a quarterly basis, so you don't have to pay a huge chunk of money come April.

 

Edit: by "taxed" I mean what you have to pay taxes on. Many, maybe even most stipends don't automatically deduct social security, medicare, etc, out of your paycheck. So you have to pay a whole lot on/before April 15th when you file taxes. For instance, I have a full ride scholarship at my undergraduate university. The part that goes towards paying tuition and some (not all) fees I do not have to declare as income, and thus I never pay taxes on it. The part that I use to pay for my room & board I must declare as income, and I must pay taxes on every spring. However, this money doesn't have any of the automatic deductions on it (social security and the like) that most paychecks do. So if I get, say $1000 to pay for my room, I have to pay more taxes on that in April then someone who brought home $1000 from their job, but had their taxes automatically deducted (because, in reality, they earned, say, $1200, and then the $200 was taken out for taxes).

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a lot of countries have tax treaties with the US. but these usually put an upper bar of 5k and anything above 5k is taxed. and its for a certain period of time.

as an international, there is only a standard deduction and no personal/education/state and local tax/etc deduction allowed.

in most cases, if you stay in the us for 5 yrs, after that you loose your benefit of the tax treaty with your home country and file as an american with a 1040-ez or whatever. then you can start claiming all kinds of neat deductions....

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actually, i think if you file a 1040EZ or 1040A then you can only take the standard deduction. If you can come up with itemized deductions over I think ~8K, however, then you should file plain 1040 and do that. hopefully, learning PHD level economics will help our creativity in thinking up 8K in deductions...
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I'm pretty sure that Jhai has given the correct response. Beyond educational expenses, it's all technically taxable income - assistantships and fellowships. Assistantships will likely be taxed up front (i.e. like any other paycheck, they take taxes out before you get the check). Fellowships, if they just cut you a check, probably won't have taxes taken out.

 

However, it should all be considered taxable income for tax purposes, and you're supposed to report it as income. Whether you do or not, well, that's another story, and I doubt the IRS will come banging down your door to get their portion of your slightly-above-minimum-wage earnings. But, technically, it's tax evasion... again, unlikely that you'll be geting audited.

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Fellowships are not taxable given the following conditions:

 

  1. You are a candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regular enrolled body of students in attendance at the place where it carries on its educational activities;
  2. Amounts you receive as a scholarship or fellowship are used for tuition and fees required for enrollment or attendance at the educational institution, or for books, supplies, and equipment required for courses of instruction; and
  3. The amounts received are not a payment for your services.

#1 and #3 are obviously applicable. #2 doesn't seem to be, which is contrary to what I've been told by numerous people who should know better...they've said as long as the fellowship doesn't pay more than the cost of room and board plus books etc., then it is not taxable. But as it's written by the IRS it seems that most grad students would have to report taxable income.

 

If you think about how many undergrad students receive free room/board, it seems that is no different from grad students who have to rent their own apartments and pay for food.

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If you think about how many undergrad students receive free room/board, it seems that is no different from grad students who have to rent their own apartments and pay for food.

 

I receive "free" room & board, in that I have a scholarship which pays for that, and I've been paying tax on that every year I've been in classes. Granted, I probably could have gotten away with not paying them, since the tax system is mostly one big honor code...

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  • 2 weeks later...

Jhai's comments have been consistently correct throughout this post. Kartelite's post comes from the cited online tax topics and #2 means that you owe taxes on whatever you have left over after subtracting out the cost o education (tuition/fees+books+supplies+equipment).

 

OneMoreEcon was right in the sense of how taxes are applied but partially right on assistantships vs. fellowships. Depending on the department, assistantships are usually reported in W-2s and not through the 1098-E (where you'll find fellowships, tuition waivers, and loans reported). If the depts are not sound at accounting, they may actually include assistantships in the 1098-E (which would mean you aren't paying taxes on it and it should really be called a fellowship and not assistantship). In the first case, the funds are straight up income. In the second case, they're part of educational expenses that must be included in gross income and noted to the side (explained a little later).

 

If you get $10,000 in a scholarship or fellowship and books cost $500, tuition $8500, supplies $100 and equipment $400 then you have a total of $9500 in non-taxable income and $500 that you are obliged to pay taxes on (assuming you are at a taxable level).

 

Your institution will send you and the IRS a copy of a 1098-T Tuition Statement. Often times, this may not be entirely accurate enough for you to do your computations. Also, it's not going to include expenses on the last three things in #2.

 

If you get a W-2 from your institution, that's for a job like a TA-ship or an RA-ship and should not be included in the amounts you're factoring in.

 

To report gross income, you include it on Line 7 of the 1040 and write SCH 500 out to the left on the dots. That will denote how much you owe in taxes to scholarship money.

 

Reported on Line 50 of the 1040, Form 8863 can allow you to claim educational credits. BUT if you're not doing it with electronic tax software, read the instructions carefully because there is a limit to how much and how many times you can claim the credit. AND if you parents have already claimed on the credits in years past or the present year, that will affect your claim. (Hope credit is limited to # years so most grad students would claim the Lifetime Learning Credit if nobody else claims it already for them.)

 

Student loan interest (say between the transition from undergrad to grad school) is deductible on Line 33 of the 1040. That doesn't mean the full amount of what you paid...it's the interest part on that full amount (your lender should supply a 1098-E Student Loan Interest Statement).

 

Finally, if you are still coming out having to pay taxes, look into a moving expense deduction with Form 3903 on Line 26 of the 1040. If you had a job before you moved and another once you started grad school (like a TA or RA-ship), you may qualify to deduct moving expenses. I think 50 miles is the minimum distance of the move. The IRS isn't clear on its definition of a job. I haven't looked deeply enough to see if it has a 20-hour or 30-hour per week requirement. NOTE that there IS a requirement to stay in the location and working for around 39 consecutive weeks in a year. If you don't, you can't claim it. If you started grad school in '06, you can claim the moving expense on the 2006 or next year's 2007 taxes. Your pick!

 

Those are the tricks to look for on most tax years. Keep in mind that the federal govt may increase the maximum amount of loanable funds over the next few years. If you pay some back, that means you're eligible to take that back out...so if you've got the money and anticipate lower future interest rates, you can pay back the loan now and take out more soon to secure a lower rate and reduce the present value you will pay in total interest. However, if you consolidated your federal loans with a private firm, you kinda screwed yourself (though whatever you had taken out before is now available again). For example, you take out $10K and there is a max of $40K. If you pay back $5K, you are eligible later to take out up to $35K in loans...and if that max amt increases, you can take out even more.

 

Make sure you at least sort of understand this jargon because the tax software like TurboTax wasn't entirely clear on all parts (though fairly easy to use and just as accurate as what I computed by hand).

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