<p>My neighbor's son is attending a local university for his Ph.D. He received an email from the school telling him that he would not be receiving a W-2 or a 1099 for his stipend. It further stated that he should consult his accountant for the taxability of the stipend.</p>
<p>Now, I know that the stipend is taxable. What I don't understand is why the school doesn't have to issue any tax reporting statement. The student is worried because if they don't withhold tax on it, won't he have to save up and pay when he files his return? I told him to let me know when he gets his first paycheck and see how they handled it. He reported that they withheld city and state income tax but not Federal. So the school knows it's taxable, yet they don't report it to the IRS?</p>
<p>yes-- and its pretty complicated. You need to pay quarterly taxes on the income. Depending on the way that the stipend is worded, it either counts as self-employment (meaning you need to pay FICA+ the employers portion of FICA), or it counts as a random form of income on which you don’t need to pay FICA at all. I am surprised that they withheld anything from the paycheck, my school doesn’t and so we need to pay state taxes quarterly as well. </p>
<p>At the end of the year, the school should send a form saying the total value of the stipend. My school was not very useful, and sent home the form that had the total value for the academic year, when in reality I had just worked sept-dec. They also included the value of the tuition remission, which in my case was not taxable, but in certain instances might be. </p>
<p>it’s hard to find an accountant who knows what to do with grad stipends-- my parents accountant definitely did not and I had to do most of the research when I was told that I owed $3000 on a $9000 income. </p>
<p>also- on another note, since either way there is no technical earned income you can’t contribute to a ROTH IRA while being paid through a stipend.</p>
<p>also- grad students tend to be targets for audits, since it is complicated and it is relatively easy to avoid paying anything.</p>
<p>Best thing he can do is go ahead and pay some tax installments (assuming he has had other income that will take him up to the reportable income levels for 2009 (was @ $8,300 ish in 2008).</p>
Technically, if he’s paying Self employment tax on it, it would be earned income right? Not that a poor student is going to want to contribute to his IRA, but still.</p>
<p>my bad- it’s if you don’t have to pay fica (which I think applies to most stipends, but not all) that you can’t contribute, even though you pay all other state and federal taxes.</p>
Yeah. That’s the part that gets me. These are students. Unless they are getting their PhD. in tax accounting, shouldn’t the school have a better idea of what they are supposed to do with it? What’s the chance most of them just ignore it if they don’t receive a tax reporting statement?</p>
<p>With questions such as the one posed by the OP, I’ve had very good luck posting them to the newsgroup misc.taxes.moderated. Lots of CPAs, enrolled agents and even IRS employees post there and are usually happy to answer questions. They deal with issues such as this often.</p>
<p>If you have a newsgroup reader already (Outlook Express has one), you can subscribe and post to the group that way. If not, I believe you can post through Google Groups.</p>
<p>Because it’s considered a stipend and not a salary, a lot of graduate students run into this problem – the university doesn’t legally have to withhold federal income tax from it. (My graduate payment IS considered a salary, so I thankfully haven’t run into this problem. But I did when I was getting a tax-liable stipend in undergrad). In these cases, it is generally the student’s responsibility to withhold a certain amount of money from their check every month for income tax liability, but no one - seriously, no one - seems to be able to estimate how much! The business office will tell you to consult an accountant and accountants will tell you to ask the school.</p>
<p>They SHOULD provide him with a 1099-MISC, but might not even have to do that.</p>
<p>I get my federal taxes withheld from my check by my school automatically. For what it’s worth, the total of all my federal withholding comes out to about 15% of my gross income (and the total federal + state comes out to about 19% of my gross income), so perhaps your neighbor’s son should save 20-25% of his income per month for the inevitable tax hammer. Even if he doesn’t end up spending all of that, the remaining percentage will be a nice savings.</p>