J. L. Boone, Ph.D., Ecology
Tax Treatment of Graduate Student Stipends

Published in 1993 in "Teaching Assistant Newsletter" and "The Compass", two University of Georgia Graduate Student Newsletters.

There seems to be considerable fear and confusion surrounding the tax status of graduate student stipends (scholarships and assistantships). Well, I'm here to say that at least a portion of our stipend is potentially non-taxable, and I know this is true because I was audited last year for 1988, but I fought back and took the IRS to court -- and won.

The rules are complicated, but we are the educational elite, so we ought to be able to figure them out. The tax treatment of stipends originally awarded before and after August 17, 1986, is different. My stipend started in 1987, and I don't know much about the earlier rules. For stipends originally awarded after August 17, 1986, at least a portion of the stipend may be tax free.

In general, stipend money used for school expenses is tax-exempt, and stipend money used for living expenses is taxable. Up to a limit, that portion of the stipend spent on required books, fees, tuition, and supplies is non-taxable (not including room, board, and transportation); the remainder is taxable. The maximum limit is different for each of us, and this is where the gray-area begins.

To determine your limit, you must to accept the notion that (brace yourself, it's OK) the Graduate School thinks we are paid more than we are worth. In my case, I had a research assistantship in 1988 (the year for which I was audited). The graduate school could have hired a person with equivalent qualifications (possession of a BS) as a Research Technician to do my job. The amount they would have paid the technician is considered "payment for services" (taxable wages) by the IRS, and the amount above what they would have paid the technician is considered a "scholarship." The extra amount, the "scholarship," is the maximum amount available for exclusion from gross income. Contact your departmental business person for your particular job title and salary equivalent.

For example, in 1988 I received about $7,500 for my 1/3-time RA. A 1/3-time Research Tech would have made about $5,000. Therefore $7,500 - $5,000 = $2,500 is the maximum amount that is available for exclusion from gross income. However, I only spent $1,500 on books, fees, tuition, etc., so I lost the tax deductibility on the remaining $1,000. In the end, I declared $6,000 as my total gross income for 1988, not $7,500.

Report the amount excluded from income on the wages line of the Tax Return (e. g. line 7 of form 1040) by writing, for example, "- $1,500 SCH" to the right of the printed words on Line 7. It is probably a good idea to attach a letter of explanation to the tax return, and be sure to keep records or receipts for proof in case you are audited. Additional information is available from the IRS: IRS Publication 17, 520, and the general instructions that are sent out with form 1040.

These are the rules, and this way of applying them worked for me in tax court, but remember, if you are audited, you are on your own; the University will only back you with information.

Note: All distances, elevations, and other facts are approximate.
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