Emily Roberts obtained a doctorate. in Biomedical Engineering from Duke University in 2014. She is the founder of Websites Personal finance for doctors, Doctoral scholarships, and The evolution of personal finance. Connect to Twitter with @PFforPhDs.
The most delicate step in the process of preparing a tax return for a graduate student in the United States is the very first: identifying your income and other key numbers to manually insert into your tax return, to enter in your tax software or give to your tax preparer. .
For most taxpayers, this step is not difficult at all as the relevant numbers appear on a W-2 or other commonly used tax form, and they are simply plug and play.
Graduating students are usually not so lucky.
Universities are not required to report scholarship / training scholarship income on a specific tax form, so they may appear in one of a few different places or nowhere. the inconsistent / lack of declaration and scarcity of withholding tax on this income often misleads graduate students into believing that the income is not taxable (It is).
Similar issues apply to money that pays tuition and fees on behalf of the graduate student. Graduate students have a vague idea that they shouldn’t pay tax on this money, but rarely do the math to justify excluding it from their taxable income. Some universities publish a form to help you, but even that form may be incomplete or in need of adjustment.
This article details the five digits you need for a complete and accurate federal graduate student tax return and where they should ultimately appear on your tax return. Most graduate students only need to process a subset of these numbers in a single calendar year, but you should read the whole list because 1) you might not know them all right now, and 2) a simply changing your funding source could bring an entirely different subset of numbers into any of your future tax returns. For a full discussion of the calculations related to your Tuition Fee / Scholarship / Remission, Grant, and Qualified Education Expenses (QEE), please see How to prepare your tax return for graduate students and / or register my next tax free webinar.
1. Compensatory income
If you have an assistant position (or are otherwise considered a (student-) employee of your university), your income will be reported on a W-2 in Box 1, Salaries, tips and other remuneration. This number (along with any other salary you earned during the calendar year) goes directly into:
- Form 1040 line 7
- Form 1040A line 7
- Form 1040EZ Line 1
- Form 1040NR line 8
- Form 1040NR-EZ Line 3
2. Total non-compensatory income
If you are a funded graduate student, you almost certainly have non-compensatory income such as scholarships, scholarships, grants, and tuition waivers. If your tuition and fees are paid on your behalf, that money is likely non-compensatory income. Your allowance / salary can also be non-compensatory income, especially if you know it comes from a scholarship or training grant.
If your university has generated a 1098-T form for you, it will be much easier to find out your non-compensatory salary and EQAs (next section). By default, universities are expected to generate 1098-T for all students. However, there is an exception to the requirement when a student’s non-compensatory income is equal to or greater than their EQE, as is the case with many funded graduate students.
If you have a 1098-T, your non-compensatory income is in box 5.
If you receive a non-compensatory allowance that is not included in box 5, other places to look for it are:
- a 1099-MISC form in box 3
- a courtesy letter (informal letter indicating the amount of scholarship income for the calendar year),
- a 1042-S form (for international students) in box 2, and
- your bank statements.
Since universities are not required to report non-compensatory allowance income for domestic graduate students in any way, sometimes it is not fully reported and you need to consult your own records for the calendar year to find the exact figure.
If you did not receive 1098-T at all, add up all of the scholarships, scholarships, and grants that have been applied to your student account. (Even if you received a 1098-T, it’s a good idea to check its numbers against those transactions.)
Once you have completed your search for non-offsetting income, add up all the sources. The next step is to apply your EQAs, so don’t report your non-compensatory salary yet, as you could end up reporting a smaller number on your tax return.
Ultimately, you will declare your non-compensatory income on:
- Form 1040 line 7
- Form 1040A line 7
- Form 1040EZ Line 1
- Form 1040NR line 12
- Form 1040NR-EZ Line 5
3. Total eligible educational expenses (QEE)
As a graduate student, you will almost certainly have some QEE charged to your student account (bursar, cashier, etc.) which you can use to reduce your tax liability.
If you received a 1098-T from your university, you may find your EQAs listed in box 1 or box 2. However, if box 7 was checked, you may need to adjust the number. To see Strange tax situations for fully funded graduate students for more details.
If you did not receive a 1098-T (or if box 7 was checked), you will have to dig into your student account. Look at all the transactions in the account and add up the QEE amounts.
You may have additional EQs that have not been processed through your student account, such as required educational materials.
There are three different education tax benefits available to graduate students in 2017: the Non-Compensatory Income Tax Exemption, the Tuition and Education Fee Deduction, and the Lifetime Learning Credit. . Exactly how and in what order to apply these benefits is beyond the scope of this article, so please read about it further in How to prepare your tax return for graduate students.
Be careful with the total amount of EQ you use for education benefits, as some expenses are EEQ under one benefit but not under another, so you should look for the exact definitions in publication 970, chapters 1, 3 and 6.
4. Tax withheld
If you received compensatory remuneration, the federal tax you withheld throughout the year will be reported in Form W-2, box 2. If your non-compensatory remuneration is reported on a 1099-MISC, the Federal tax you withheld (if applicable) will be reported in box 4. If your non-compensatory earnings are reported on a 1042-S, the federal tax you withheld will be reported in box 4.
The total of your tax withheld must be declared on:
- Form 1040 line 64
- Form 1040A line 40
- Form 1040EZ line 7
- Form 1040NR line 62a
- Form 1040NR-EZ Line 18a
5. Estimate of tax paid
If you paid the estimated tax during the calendar year, you will not receive any tax form regarding the amount paid, so you should consult your own records.
Your total estimated taxes paid should be reported on:
- Form 1040 line 65
- Form 1040A line 41
- Form 1040NR line 63
- Form 1040NR-EZ Line 19
(If you receive a stipend and your taxes are not withheld, chances are you are responsible for paying estimated quarterly taxes. You can read more about this in How Fellows Should Prepare for Time to Go. taxes at the start of the academic year or register for my next live workshop to pay your estimated tax for the first quarter of 2018.)
Once you’ve put these five numbers or the subset that applies to you, you’re well on your way to accurately preparing for the graduate student aspect of your tax return. At this point, you can pop your numbers into tax software or send them to your tax preparer without hesitation. Alternatively, you can do the final calculations yourself regarding your non-compensatory salary and your EQS to complete your tax return manually. For more help understanding your graduate student taxes, please attend my tax free webinar 03/09/2018 live (there will be a Q&A) or watch the replay.
[Image by Flickr user Jeremy Brooks and used under Creative Commons licensing.]