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Emily Roberts received a Ph.D. in biomedical engineering from Duke University in 2014. She is the founder of the websites Personal Finance for PhDs, PhD Stipends, and Evolving Personal Finance. Connect on Twitter with @PFforPhDs.
The trickiest step in the tax return preparation process for a graduate student in the US is the very first one: identifying your income and other key numbers to plug into your tax return manually, enter into your tax software, or hand over to your tax preparer.
For most taxpayers, this step is not challenging at all because the relevant numbers show up on a W-2 or other commonly used tax form, and they just plug and play.
Graduate students aren’t usually so fortunate.
Universities aren’t required to report fellowship/training grant income on any specific tax form, so it can show up in one of a few different places or nowhere at all. The inconsistent/lack of reporting and the rarity of tax withholding on that income frequently misleads grad students into thinking the income isn’t taxable (it is).
Similar issues apply to the money that pays the tuition and fees on behalf of the grad student. Grad students have a vague idea that they shouldn’t pay tax on this money, but rarely perform the necessary arithmetic to justify excluding it from their taxable income. Some universities issue a form to help with this, but even that form might be incomplete or in need of adjustment.
This post details the five numbers you need for a complete and accurate grad student federal tax return and where they should ultimately show up on your tax return. Most grad students have to deal with only a subset of these numbers in a single calendar year, but you should read through the whole list because 1) you may not currently be aware of all of them and 2) a simple change in funding source could bring a totally different subset of the numbers into one of your future tax returns. For a full discussion of the calculations related to your tuition waiver/scholarship/remission, fellowship, and qualified education expenses (QEEs), please see How to Prepare Your Grad Student Tax Return and/or register for my upcoming free tax webinar.
1. Compensatory Income
If you have an assistantship (or are otherwise considered a (student-)employee of your university), your income will be reported on a W-2 in Box 1, Wages, tips, and other compensation. This number (along with any other wages you earned in the calendar year) goes straight into:
- Form 1040 Line 7
- Form 1040A Line 7
- Form 1040EZ Line 1
- Form 1040NR Line 8
- Form 1040NR-EZ Line 3
2. Total Non-Compensatory Income
If you are a funded grad student, you almost certainly have some non-compensatory income e.g. fellowships, scholarships, grants, and tuition waivers. If your tuition and fees are paid on your behalf, that money is likely non-compensatory income. Your stipend/salary may also be non-compensatory income, especially if you know it comes from a fellowship or training grant.
If your university generated a Form 1098-T for you, discovering your non-compensatory pay and QEEs (the next section) will be much easier. By default, universities are supposed to generate 1098-Ts for all students. However, there is an exception to the requirement when a student’s non-compensatory income equals or exceeds her QEEs as is the case for many funded grad students.
If you do have a 1098-T, your non-compensatory income is found in Box 5.
If you receive a non-compensatory stipend that is not included in Box 5, other places to look for it are:
- a Form 1099-MISC in Box 3
- a courtesy letter (informal letter stating the amount of fellowship income for the calendar year),
- a Form 1042-S (for international students) in Box 2, and
- your bank statements.
Since the universities are not required to report non-compensatory stipend income for domestic grad students in any particular way, sometimes it goes unreported entirely, and you should consult your own records for the calendar year to find the exact figure.
If you didn’t receive a 1098-T at all, add up all the scholarships, fellowships, and grants that were applied to your student account. (Even if you did receive a 1098-T, it’s a good idea to double-check its figures against these transactions.)
After you’ve concluded your search for non-compensatory income, sum all the sources together. The next step is to apply your QEEs, so hold off on reporting your non-compensatory pay just yet because you might end up reporting a smaller number on your tax return.
Ultimately you will report your non-compensatory income on:
- Form 1040 Line 7
- Form 1040A Line 7
- Form 1040EZ Line 1
- Form 1040NR Line 12
- Form 1040NR-EZ Line 5
3. Total Qualified Education Expenses (QEEs)
As a grad student, you will almost certain have some QEEs charged to your student (Bursar, Cashier’s, etc.) account that you can use to reduce your tax liability.
If you received a 1098-T from your university, you can find your QEEs listed in Box 1 or Box 2. However, if Box 7 was checked, you may need to adjust the figure. See Weird Tax Situations for Fully Funded Grad Students for more details.
If you didn’t receive a 1098-T (or if Box 7 was checked), you’re going to have to do some digging in your student account. Look at all the transactions in the account and add up the amounts of the QEEs.
You may have some additional QEEs that were not transacted through your student account, such as required course-related materials.
There are three different education tax benefits available to grad students in 2017: making non-compensatory income tax-free, the Tuition and Fees Deduction, and the Lifetime Learning Credit. Exactly how and in what order to apply these benefits is beyond the scope of this post, so please read about this further in How to Prepare Your Grad Student Tax Return.
Tread carefully with the total amount of QEEs that you use for the education benefits because certain expenses are QEEs under one benefit but not another, so you have to look up the exact definitions in Publication 970 Chapters 1, 3, and 6.
4. Tax Withheld
If you received compensatory pay, the federal tax you had withheld throughout the year will be reported in Form W-2 Box 2. If your non-compensatory pay is reported on a 1099-MISC, the federal tax you had withheld (if any) will be reported in Box 4. If your non-compensatory pay is reported on a 1042-S, the federal tax you had withheld will be reported in Box 4.
The total of your tax withheld should be reported on:
- Form 1040 Line 64
- Form 1040A Line 40
- Form 1040EZ Line 7
- Form 1040NR Line 62a
- Form 1040NR-EZ Line 18a
5. Estimated Tax Paid
If you paid estimated tax during the calendar year, you won’t receive any tax forms regarding the amount paid so you have to consult your own records.
The total of your estimated tax paid should be reported on:
- Form 1040 Line 65
- Form 1040A Line 41
- Form 1040NR Line 63
- Form 1040NR-EZ Line 19
(If you are receiving a stipend and are not having tax withheld from it, it’s likely that you are responsible for paying quarterly estimated tax. You can read more about that in How Fellows Should Prepare for Tax Time at the Start of the Academic Year or register for my upcoming live workshop to pay your estimated tax for the first quarter of 2018.)
Once you have assembled these five numbers or the subset relevant to you, you’re well on your way to preparing the grad student aspect of your tax return accurately. At this point, you can plug your numbers into tax software or send them to your tax preparer without second-guessing yourself. Alternatively, you can execute the final calculations regarding your non-compensatory pay and QEEs yourself to complete your tax return manually. For further help understanding your grad student taxes, please attend my free tax webinar on 3/9/2018 live (there will be a Q&A) or catch the replay.
[Image by Flickr user Jeremy Brooks and used under Creative Commons licensing.]
