Sunday, April 22, 2012

Dearth and taxes

Although I am quite fortunate to receive a stipend to help me get through graduate school, I wouldn’t exactly call my lifestyle luxurious. I consider rice and beans to be an easy, cheap, nutritious meal, but for some reason my non-grad student friends (let’s call them "real adults") think that it is strange for me to want to eat this dish continuously. Shouldn’t we all be restricting our meat intake, anyways?

A further financial complication arises from the fact that Uncle Sam feels that we grad students are responsible enough to manage our finances and pay our taxes without any help from him in the form of withholdings. This makes sense, because the tax code is not difficult at all to understand and we all have lots of free time to figure it out – NOT. Unfortunately, my school does not seem to provide much in the way of resources to help us decipher our fiduciary obligations.

In an effort to help future generations of grad students figure out their tax situation, below is some of the meager knowledge I have gained by searching through the intertubes and reading IRS pdfs. Note: I am not a "professional" in any sense of the term, so the usual legal disclaimer applies that you should not consider this to be tax advice; it is general information only. Also note that my first year funding comes from a NIH training grant. Different funding sources may result in different tax scenarios.

  • Grad students receiving scholarship money are not "self-employed" and do not need to pay the higher self-employment tax rate, even though there is at least one example of the IRS auditing a grad student and trying to get them to do so. This means that I am not currently contributing to social security or medicare and am just paying income taxes, which sucks because I think those programs are important.
  • "Taxable income" for me is the difference between box 5 and box 1 on my 1098-T tuition statement form. This is higher than my stipend because it includes money which pays for my health insurance, which should also be taxed. 1098-T forms can be viewed online at
  • Scholarship income is not "earned income" and thus I cannot make any IRA contributions using my stipend.  See this forum thread and IRS publication 590 for details. The bottom-line from Pub 590: "Scholarship and fellowship payments are compensation for IRA purposes only if shown in box 1 of Form W-2"
  • Since there is no witholding from my stipend, I must make estimated tax payments quarterly, both to the IRS and to California's Franchise Tax Board.


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