4 ms·

Those on federal fellowships (NSF, DOD, DOE) receive neither, but must still pay federal and state income tax. And no, the dollars are not eligible for Roth IR

Those on federal fellowships (NSF, DOD, DOE) receive neither, but must still pay federal and state income tax. And no, the dollars are not eligible for Roth IRA contributions. Sen. Warren tried to fix this earlier in the year (unsuccessfully, so far)

cozzyd 10y ago
Not just federal fellowships but private and even departmental fellowships as well. Makes for a big surprise tax season when you realize you should have paid estimated taxes.
- tanderson92 10y ago
  Yes but those can and do vary in their tax status, with some just treated as a source of your stipend compensation (i.e. W-2). The government doesn't really know about when you were paid though, so you're unlikely to get hit with penalties if you do forget to pay the estimated tax.
  - mbreese 10y ago
    They don't vary in the taxable status. Any[1] income you receive is taxable. The IRS doesn't care if it is a "fellowship", a "stipend", or "wages" - or if your school considers you a student or an employee - if you got income, it needs to be reported. And if you don't get a W2 (and withholding), it is a big pain to deal with the estimated taxes. You only get leeway for failing to pay estimated taxes for your first year. After that, you're supposed to know that you owe taxes and can (and will) be hit with penalties. The timing issues only come into play with "seasonal" or farm work... for these purposes, the IRS will assume you're paid on a regular basis, and thus owe estimated taxes on a regular basis. It makes it really fun when you and your spouse are both grad students, and have to deal with that twice. [1] Okay, not everything, but for the purposes of this discussion, yes.
    - tanderson92 10y ago
      Yes, they do. Bizarrely, I know of two people with an NSF GRF at different institutions, one who receives a W-2 and one who does not. They both receive departmental "fellowships". There is more to "tax status" than whether you must pay income tax. There are payroll taxes, Roth IRA-eligibility, etc.
      - maxerickson 10y ago
        It can still be taxable income without a W-2.
        tanderson92 10y ago
        Agreed! That is not in dispute. The question is whether tax status of income is wholly determined by whether the income is considered "taxable income". In the bizarro world of the IRS, the answer is no !
      - cozzyd 10y ago
        Yes, I believe generally full-time students are exempt from payroll taxes when paid by the same institution they are students at.
      - mbreese 10y ago
        I've been on fellowships where I got a W2 (and taxes withheld), and others where I was paid a stipend and I had to pay estimated taxes myself. My point is - just because a "fellowship" income is not reported via a W2 doesn't mean one doesn't have to pay taxes on it. But, it's all taxable income as far as the IRS is concerned.
        tanderson92 10y ago
        Yes, but my larger point here was that "taxable income" ==/==> "taxable compensation". That is, there is strictly more to "tax status" of income than whether it is taxable income. For more, read Pub 970. It's really quite complicated than whether you pay taxes on the income or not.
  - sldivzklhc 10y ago
    I had a grant-funded summer internship at a military institute. They gave me a 1099, with all the money filled in to a box that indicated I didn't owe tax. Got hit with self-employment taxes and a penalty two years after. Pretty sure I fit the requirements for W2 and they should have paid but I'm not about to report the military to the IRS or sue them.
    - dnautics 10y ago
      > I'm not about to report the military to the IRS or sue them. Suing them is not a good idea, but why not report them? It's not like retribution will come your way and it could be interesting, if not better (as in "less contradictory") for future people in your position.
- deleted 10y ago
  [deleted]
cfallin 10y ago
At least on the NSF GRFP, and at least in my department at CMU, I still received W-2s, and federal deductions happened normally as per my W-4. (The fellowship funding went through the dept and I was paid by CMU.) Maybe my department is an outlier, though shrug Also, some states treat graduate stipends specially. In Pennsylvania, the stipend is exempt from state and local income tax.
- tanderson92 10y ago
  I wouldn't say it is an outlier, but I know numerous people with GRFPs in both situations. I used to think that it was better to receive it as W-2 income. Now, with Social Security looking less certain 30 years from now, I wonder who really is in the better position.
  - Cyph0n 10y ago
    > Now, with Social Security looking less certain 30 years from now, I wonder who really is in the better position. I'm new to the U.S. tax system. What do you mean by that? Isn't tax mandatory? I mean, either way you're going to have to pay up, be it every month or when tax filing time comes around. I'm actually applying for the GRFP this year, but I'm not sure how my university handles the funds.
    - joeyo 10y ago
      [ The following is not tax advice. ] Stipends are generally considered "awards" and not "wages", so Social Security and Medicare taxes are not withheld. There's no free lunch, of course, because each quarter that those taxes are not withheld are quarters that don't accrue the "credits" needed to qualify for Social Security benefits. This could be an issue for someone who, for example, became permanently disabled at a young age. Most people, of course, will work enough years after graduate school that they will qualify for Social Security benefits, but it is something to consider. I think it's standard at this point for universities to not withhold any tax from stipends (or the stipend portion of a disbursement to a graduate student if they are paid from multiple sources). Of course, income is income, whether it's "earned income" or not: so it's not like there isn't a tax liability just because the university doesn't withhold tax. Note that all this is even more complicated for foreign nationals, for whom some combination of state and federal taxes may actually be withheld depending on the specific tax treaty that applies, the visa status of the student and current IRS policy.
gsteinb88 10y ago
Not universally true -- I know students on NDSEG fellowships (i.e. DoD) receive a 1099. I can't speak to the other fellowships though, and I don't get any deduction/withholding done for me, so I have to pay estimated quarterly. And funds that come through my university do get a W-2 come tax time.
- tanderson92 10y ago
  It's utterly bizarre in that it varies from institution to institution. I am on a DOE CSGF and we receive /nothing/, just a letter stating what funding we received in a given year. I received a NDSEG as well and my research showed up a lack of homogeneity in how each school handles things.
  - gsteinb88 10y ago
    "Utterly bizarre" captures a lot of my feelings about science funding and the graduate student research mill, yeah

cozzyd 10y ago

Not just federal fellowships but private and even departmental fellowships as well. Makes for a big surprise tax season when you realize you should have paid estimated taxes.

tanderson92 10y ago
Yes but those can and do vary in their tax status, with some just treated as a source of your stipend compensation (i.e. W-2). The government doesn't really know about when you were paid though, so you're unlikely to get hit with penalties if you do forget to pay the estimated tax.
- mbreese 10y ago
  They don't vary in the taxable status. Any[1] income you receive is taxable. The IRS doesn't care if it is a "fellowship", a "stipend", or "wages" - or if your school considers you a student or an employee - if you got income, it needs to be reported. And if you don't get a W2 (and withholding), it is a big pain to deal with the estimated taxes. You only get leeway for failing to pay estimated taxes for your first year. After that, you're supposed to know that you owe taxes and can (and will) be hit with penalties. The timing issues only come into play with "seasonal" or farm work... for these purposes, the IRS will assume you're paid on a regular basis, and thus owe estimated taxes on a regular basis. It makes it really fun when you and your spouse are both grad students, and have to deal with that twice. [1] Okay, not everything, but for the purposes of this discussion, yes.
  - tanderson92 10y ago
    Yes, they do. Bizarrely, I know of two people with an NSF GRF at different institutions, one who receives a W-2 and one who does not. They both receive departmental "fellowships". There is more to "tax status" than whether you must pay income tax. There are payroll taxes, Roth IRA-eligibility, etc.
    - maxerickson 10y ago
      It can still be taxable income without a W-2.
      - tanderson92 10y ago
        Agreed! That is not in dispute. The question is whether tax status of income is wholly determined by whether the income is considered "taxable income". In the bizarro world of the IRS, the answer is no !
    - cozzyd 10y ago
      Yes, I believe generally full-time students are exempt from payroll taxes when paid by the same institution they are students at.
    - mbreese 10y ago
      I've been on fellowships where I got a W2 (and taxes withheld), and others where I was paid a stipend and I had to pay estimated taxes myself. My point is - just because a "fellowship" income is not reported via a W2 doesn't mean one doesn't have to pay taxes on it. But, it's all taxable income as far as the IRS is concerned.
      - tanderson92 10y ago
        Yes, but my larger point here was that "taxable income" ==/==> "taxable compensation". That is, there is strictly more to "tax status" of income than whether it is taxable income. For more, read Pub 970. It's really quite complicated than whether you pay taxes on the income or not.
- sldivzklhc 10y ago
  I had a grant-funded summer internship at a military institute. They gave me a 1099, with all the money filled in to a box that indicated I didn't owe tax. Got hit with self-employment taxes and a penalty two years after. Pretty sure I fit the requirements for W2 and they should have paid but I'm not about to report the military to the IRS or sue them.
  - dnautics 10y ago
    > I'm not about to report the military to the IRS or sue them. Suing them is not a good idea, but why not report them? It's not like retribution will come your way and it could be interesting, if not better (as in "less contradictory") for future people in your position.
deleted 10y ago
[deleted]

cfallin 10y ago

At least on the NSF GRFP, and at least in my department at CMU, I still received W-2s, and federal deductions happened normally as per my W-4. (The fellowship funding went through the dept and I was paid by CMU.) Maybe my department is an outlier, though shrug Also, some states treat graduate stipends specially. In Pennsylvania, the stipend is exempt from state and local income tax.

tanderson92 10y ago
I wouldn't say it is an outlier, but I know numerous people with GRFPs in both situations. I used to think that it was better to receive it as W-2 income. Now, with Social Security looking less certain 30 years from now, I wonder who really is in the better position.
- Cyph0n 10y ago
  > Now, with Social Security looking less certain 30 years from now, I wonder who really is in the better position. I'm new to the U.S. tax system. What do you mean by that? Isn't tax mandatory? I mean, either way you're going to have to pay up, be it every month or when tax filing time comes around. I'm actually applying for the GRFP this year, but I'm not sure how my university handles the funds.
  - joeyo 10y ago
    [ The following is not tax advice. ] Stipends are generally considered "awards" and not "wages", so Social Security and Medicare taxes are not withheld. There's no free lunch, of course, because each quarter that those taxes are not withheld are quarters that don't accrue the "credits" needed to qualify for Social Security benefits. This could be an issue for someone who, for example, became permanently disabled at a young age. Most people, of course, will work enough years after graduate school that they will qualify for Social Security benefits, but it is something to consider. I think it's standard at this point for universities to not withhold any tax from stipends (or the stipend portion of a disbursement to a graduate student if they are paid from multiple sources). Of course, income is income, whether it's "earned income" or not: so it's not like there isn't a tax liability just because the university doesn't withhold tax. Note that all this is even more complicated for foreign nationals, for whom some combination of state and federal taxes may actually be withheld depending on the specific tax treaty that applies, the visa status of the student and current IRS policy.

gsteinb88 10y ago

Not universally true -- I know students on NDSEG fellowships (i.e. DoD) receive a 1099. I can't speak to the other fellowships though, and I don't get any deduction/withholding done for me, so I have to pay estimated quarterly. And funds that come through my university do get a W-2 come tax time.

tanderson92 10y ago
It's utterly bizarre in that it varies from institution to institution. I am on a DOE CSGF and we receive /nothing/, just a letter stating what funding we received in a given year. I received a NDSEG as well and my research showed up a lack of homogeneity in how each school handles things.
- gsteinb88 10y ago
  "Utterly bizarre" captures a lot of my feelings about science funding and the graduate student research mill, yeah