UW CSE Fellowship FAQ

This document deals with the tax consequences of having a fellowship (or scholarship, or stipend).  I am not a tax advisor and this represents my personal experience only (see Should I believe you?) so don't sue me if I'm wrong.

Should I believe you? (Disclaimer)

No.  Don't believe anyone who doesn't work for the IRS or doesn't have a big liability insurance policy.  I don't want to be sued.  This document describes my experience with fellowships.  I think I follow all the right laws, but I could be mistaken somewhere.  This document is a good starting point, but use common sense and check out the official IRS documents to be sure.

What, taxes?

Yes, some scholarships and fellowships are taxable.  See How much of it is taxable?, below.  Since often no-one deducts taxes from fellowships, you may have to pay estimated taxes.

What about an RA/TA?

RA/TA money is taxable--it's just like a regular job.  You should be getting taxes deducted from your paycheck, and you file a tax return at the end of the year as usual.  Scholarships and Fellowships are different--they're essentially a gift for the purpose of learning, no money is automatically deducted from them for tax purposes, and you owe taxes on whatever portion doesn't go for tuition and other required degree-related expenses.

How much of it is taxable?

If you are a degree candidate, you don't have to pay taxes on any fellowship or scholarship that goes to pay tuition, fees, or other class-related expenses like books.  You do have to pay taxes any money that goes for non-degree-related expenses like food, housing, etc.

So if you get a $5000 fellowship, pay $2000 in tuition, get books worth $300, and spend $50 on gas, you pay taxes on 5000-2000-300 = $2700.  Note that you have to pay tax on the gas money, as well as food money, etc.

How do I report & pay my taxes?

Fill out a 1040EZ form (or 1040A, or 1040, depending on how complicated your life is) like you would if you had a job.  Report all other income (summer job, RA/TA, etc.) as you normally would--this information should come from your W-2 form.  In the line where it says "Wages, etc." the instructions will tell you to write the letters SCH and the amount of the scholarship on the line next to your total income amount.  Here the amount you put in is the taxable part of the scholarship calculated in the question How much of it is taxable?  You add this amount to your other income.  So in our example if you had $10000 from a summer job and $3000 from a TA you'd write SCH $2700 and add $2700 to all your other income for a total of $15700 in the blank at the right of the form.

See also estimated taxes, below.

What if I have a big fellowship? (estimated taxes)

Since many fellowships don't deduct taxes up front, you may have to make "estimated tax" payments in 4 installments over the year.  If you expect to pay more than $1000 in taxes and your automatic deductions (i.e., from a RA/TA or summer job) are less than the smaller of
  1. 90% of what you expect to pay in taxes, or
  2. 100% of what you paid in taxes last year
then you have to make estimated tax payments.  This is kind of confusing.  Imagine you expect to pay $500 in taxes.  Then you don't have to pay estimated taxes, because $500<$1000.  Imagine you expect to pay $2000 in taxes, last year you paid $1500 in taxes, and you have $1000 deducted from a summer job.  Then you need to pay $500 in estimated taxes ($1500 is 100% of what you paid last year, and $500 is the difference between that and the $1000 you have automatically deducted) so you pay $125 four times a year.

If you're not sure if you need to do this, download form 1040ES from the IRS tax forms site (the 2000 form is here) and figure out whether this applies to you.  If you don't do it and you should have, you may have to pay Uncle Sam interest and penalties for not paying on time.

Tip: check the due dates carefully.  It's four times a year, but it's not every 3 months...I made this mistake and am hoping I won't have to pay $$$ for it.

Should I cheat?

Probably not a good idea.  If you get caught, you will at minimum have to pay some kind of penalty, and maybe go to prison if you did it on purpose.  If the person who gave you the fellowship reports it to the IRS, they will expect to see the part not used for educational expenses on your tax return.  Also, if you get audited, they may ask how you pay $400/month Seattle rent when your income is $0 on the tax form....

What about foreign students?

This information applies to US citizens and resident aliens only.  If you're a nonresident alien, see IRS publication 519, available by phone or on the web.

Where do I go for more information?


This document maintained by Jonathan Aldrich. This is not "official" tax advice; make sure you check things out with the IRS as well, because I don't have liability insurance.