Photo by Recha Oktaviani via Unsplash, CC0
I don’t know about you all, but I was pretty panicked when I had to figure out my taxes my first year of grad school. I had worked other jobs before, so I only understood the very basics of uploading my W-2 to a tax help website. Taxes for grad students are notoriously confusing because of our unique position as students/employees depending on the institution. As a start to the general finance side of this blog and with the tax deadline approaching in a couple months, I’ve written this guide to tackling grad student taxes. I’d like to break down the very basics of what I know about how to calculate, pay, and file taxes. We’ll use the simple scenario described below to illustrate some important points to know about the process.
*DISCLAIMER*: I am not a tax expert, CPA, or CFP, nor is this website meant to provide any legal, financial, or tax-related advice. The calculations below are only examples for educational purposes and may not reflect an individual’s actual amount owed. Please seek help from a knowledgeable tax professional or certified service before making any filing decisions. Consult the IRS website at www.irs.gov for official tax information.
The Scenario
Filing status: Single
Annual funding: $44,000 stipend + $16,000 scholarship for tuition
Source: Non-W-2 (nothing has been deducted)
Other fellowships?: No
Dependents?: No
Retirement (IRA) savings: No
Resident state: CA
What Documents Do I Need?
form 1098-T: The Tuition Statement
If you’re a grad student who is funded by a training grant such as a T32, it’s very likely that your taxes won’t be deducted for you! This means that you will need to pay lump sums in federal and state taxes every quarter. Instead of a W-2, you will probably be sent a 1098-T tuition statement from the university (though not all universities do this). This document includes tuition payments (which the university may automatically pay to itself) along with the student’s actual take-home stipend. Keep reading to learn more about interpreting the 1098-T!
form W-2 (if applicable): The Withheld Tax Statement
If you receive a W-2 or just started to receive one in the middle of the year, this document is still very important. Pay careful attention to any taxes already withheld, as you don’t want to pay those taxes again! Students who were working as lab techs or scribes before starting grad school will often receive a W-2 from their old job for work done earlier in the year.
Form 1040: The income tax return
The other documents described above should be sent to you by an employer or university, but the 1040 is the form you fill out and send to the IRS. If you use a tax filing service, they will automatically fill it out and send it for you based on the information you give them, but you can absolutely file it yourself. *Note: forms 1040-A or 1040-EZ were discontinued starting in 2018, so don’t worry about those.
Do I pay taxes on Tuition?
The short answer is: it depends
Something that really confused me in the past was what the heck we were supposed to do about tuition. Like I mentioned above, most universities still charge their grad students for this. Since those payments are directly paid to the institution, even before monthly stipend payments are disbursed, students don’t even see that money and may forget that it’s technically a part of their total funding.
At baseline, we should assume that any income we receive (whether we handle it or not) is taxable. HOWEVER, if your tuition is covered by a scholarship, it is likely non-taxable (read more here). As a personal example, tuition for students in my program is covered by a scholarship, so we do not include tuition in our gross annual income. Ask your program coordinator if your tuition is paid through a scholarship if you are unsure.
Remember that money that goes to housing, health insurance, or travel, even if it comes from a scholarship, is taxable! Consult the IRS website for more info.
How do I calculate what I owe?
Tax Bracket basics
First, let’s talk about tax brackets. As your taxable income increases, you have to pay a higher percentage in taxes. Federal taxes use a progressive tax system, so it’s not a simple percentage of your income – some portions will be taxed more or less than others. Here are the federal tax brackets for single filers in the 2022 filing year:
|
Tax rate |
Tax bracket |
Tax owed |
|---|---|---|
|
10% |
$0 to $10,275. |
10% of taxable income. |
|
12% |
$10,276 to $41,775. |
$1,027.50 plus 12% of the amount over $10,275. |
|
22% |
$41,776 to $89,075. |
$4,807.50 plus 22% of the amount over $41,775. |
|
24% |
$89,076 to $170,050. |
$15,213.50 plus 24% of the amount over $89,075. |
|
32% |
$170,051 to $215,950. |
$34,647.50 plus 32% of the amount over $170,050. |
|
35% |
$215,951 to $539,900. |
$49,335.50 plus 35% of the amount over $215,950. |
|
37% |
$539,901 or more. |
$162,718 plus 37% of the amount over $539,900. |
Example
In our scenario, our 1098-T lists our “Scholarships and grants” in Box 5 as $60,000. In Box 1, our tuition is listed as $16,000. Since tuition is covered by a scholarship, we received $44,000 in gross income for the year. Based on this chart, that puts us in the 22% bracket. We would pay $4,807.50 plus 22% of the amount over $41,775:
$4,807.50 + ($44,000 – $41,775)*0.22 = $5,297
Without any other adjustments, we would owe $5,297 for the year in federal taxes alone.
BUT WAIT! That amount is WAY too high!
Example
Let’s lower that original calculated tax, shall we? We said we would take the standard deduction of $12,950:
$44,000 – $12,950 = $31,050
We moved down a tax bracket! Now in the 12% bracket, we can calculate our amount owed the same as we did above:
$1,027.50 + ($31,050 – $10,275)*0.12 = $3,520.50
FINAL TOTAL (federal) = $3,520.50
Now we have a much more reasonable estimate for our annual federal tax owed. Don’t get me wrong: $3,520.50 is still a LOT of money, but at least it’s better than owing the IRS over $5,000!
Tax Fact:
gross income ≠ adjusted gross income ≠ taxable income
- Gross income: All your income for the year (wages, tips, interest, etc.)
- Adjusted gross income (AGI): Your gross income minus above-the-line deductions (IRA retirement contributions, student loan interest, etc.). In this scenario, since we don’t have any of those special deductions, our gross income will equal our AGI.
- Taxable income: Your AGI minus your regular deductions (itemized or standard). This is the number you use to figure out your tax bracket!
Example
First, apply the CA standard deduction:
$44,000 – $5,202= $38,798
Next, use the chart to figure and apply the correct bracket tax:
$931.69 + ($38,798 – $37,788)*0.06 = $992.29
FINAL TOTAL (state) = $992.29
To recap, we calculated that we will owe $3,520.50 in federal taxes and $992.29 in state taxes for the 2022 tax year. In total, that’s:
$4,512.79 due when you file!
how do I pay my taxes?
The actual act of paying what you owe is pretty straightforward. For federal taxes, go to the IRS website: irs.gov, and click the “Pay” tab, then the link to “Your Online Account”. From there you should be able to navigate to your personal account, though it may take time if it’s your first time logging in. There will be a “Make a Payment” button, but your account is also useful for checking on any balances or notices you might have.
State taxes will vary, of course, so we’ll just stick with California for now. Go to the CA Franchise Tax Board website: ftb.ca.gov, click the “Pay” tab, and choose your method (I recommend connecting directly to a bank account and paying it all at once if you’re able, just to have a clean financial slate for the new tax year and avoid any unnecessary debt).
Paying Quarterly taxes & penalties
Because of the amount we owe at the time of filing, grad students are expected to make estimated payments approximately every three months. The amounts that we calculated should have been divided by four and paid by each quarter’s due date:
| Taxes for: | Due date |
|---|---|
| January 1 to March 31 | April 15 |
| April 1 to May 31 | June 15 |
| June 1 to August 31 | September 15 |
| September 1 to December 31 | January 15 of the following year |
There is a penalty if you fail to make these estimated payments by the deadlines. If someone waited until the filing deadline to make all payments in one lump sum, the penalty would be approximately 3% of the underpayment (about $100 for federal taxes based on what we figured above). This is calculated based on the number of days since payment was due, as well as which quarter the payment was meant for. There is a long and somewhat complicated form to calculate this on the IRS website if you’d like to know more, linked below.
Tax Fact:
As of 2022, there is now a dedicated spot to report awarded income!
If there is no corresponding W-2, you’ll need to report your taxable stipend on Line 8r of Schedule 1. This signifies that this is awarded income and they should not expect a W-2. Check out page 24 of the 1040 instructions for more information (I learned this fact from PF for PhDs!)
