G1.2 Taxes on Financial Assistance
Updated: August 16th, 2011
Virtually all financial assistance to graduate students, except loans, is taxable under the terms of the Tax Reform Act of 1986. Fellowship and grant funds used to pay tuition, fees, and course-related expenses are excluded from taxation, but funds used for living expenses are taxable. It is up to students to claim as taxable the portion of their awards used for living expenses. The University does not withhold taxes from the stipend portions of fellowships.
The University reports awards made to international students to the IRS. Fourteen percent of their fellowship stipends will be withheld as federal tax unless their countries have a tax treaty with the United States that exempts its citizens from withholding.
Tax breaks for graduate and professional students. The 1997 Taxpayer Relief Act includes substantial tax breaks for college students and their families. The Lifetime Learning Credit, equal to 20 percent of the first $10,000 of qualified tuition and fees paid each year, or up to $2,000, is designed for adults who go back to school to upgrade their skills, college juniors and seniors, and graduate and professional students.
To be eligible for the credit, tuition and fees must be paid out of the students (or the student’s family) pocket. Grants, scholarships, or other tax-free educational assistance will not qualify, but loans and gifts will. For example, a Graduate Student Researcher (GSR) with a full fee remission will not be able to use this tax benefit. But a GSR or a Graduate Student Instructor with partial or no fee remissions or a student whose fellowship or grant covers only partial expenses may be eligible to claim a credit on the amount of qualified fees and tuition not covered. The credit is phased out when joint or single filers reach certain adjusted gross income levels. Other restrictions apply. Non-citizens are generally not eligible.
The University will provide students early in the new year with a statement of the eligible fees they have paid. They will file this statement with their tax returns. Graduate students who have children or other family members attending college may qualify for the Hope Scholarship Tax Credit for undergraduate study, and graduate students repaying student loans may qualify for the student loan interest deduction. For more information on the educational provisions of the 1997 Taxpayer Relief Act, see the Billing and Payment Services website
Students will find more information in the following IRS publications online.
Your Federal Income Tax Publication 17
U.S. Tax Guide for Aliens Publication 519
U.S. Tax Treaties Publication 901
Tax Withholding and Estimated Tax Publication 505
Tax Benefits for Education Publication 970
Tax Guide for U.S. Citizens and Resident Aliens Abroad Publication 54
Exemptions, Standard Deduction, and Filing Information Publication 501
Foreign Tax Credit for Individuals Publication 514
Taxable and Nontaxable Income Publication 525
How Do I Adjust My Tax Withholding Publication 919
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