Thoughts on fellowship/stipend

Paying for College
1

<p>Son is a PhD student. He has his tuition paid for, plus health care and $1000 a year for books. In addition, he was paid a stipend each month for the entire year. He also did an internship in another state for 12 weeks for which they gave him an addition amount every week for "living expenses". I understand he has to pay tax on everything but his qualified tuition. I also understand that this money is claimed as "scholarship/grant" income on line 7 of the 1040 and does not qualify him for earned income for the purpose of putting money into a Roth IRA. This is all reported to him on a 1099-misc as "other income"</p>

<p>Is there any way he can claim some of it as non employee compensation? Even though he would pay self employment tax on it, it would allow him to put money in his Roth.</p>

<p>He has to rent a place to stay for those 12 weeks of his internship. Can he deduct this? If so, on what line or schedule of his tax return?</p>

<p>Any help or guidance is appreciated.</p>

2

<p>These ideas sound really creative, quite possibly too creative… :slight_smile: Good luck!</p>

3

<p>I was looking for this kind of stuff yesterday. Here’s what I found:</p>

<p>[Publication</a> 970 (2010), Tax Benefits for Education](<a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service)</p>

<p>Reporting Scholarships and Fellowships</p>

<p>Whether you must report your scholarship or fellowship depends on whether you must file a return and whether any part of your scholarship or fellowship is taxable.
If your only income is a completely tax-free scholarship or fellowship, you do not have to file a tax return and no reporting is necessary. If all or part of your scholarship or fellowship is taxable and you are required to file a tax return, report the taxable amount as explained below. You must report the taxable amount whether or not you received a Form W-2. If you receive an incorrect Form W-2, ask the payer for a corrected one.
For information on whether you must file a return, see Publication 501, Exemptions, Standard Deduction, and Filing Information, or your income tax form instructions.</p>

<p>How To Report</p>

<p>How you report any taxable scholarship or fellowship income depends on which return you file.
Form 1040EZ. If you file Form 1040EZ, include the taxable amount in the total on line 1. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1.
Form 1040A. If you file Form 1040A, include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7.
Form 1040. If you file Form 1040, include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7.</p>

<h2>Schedule SE (Form 1040). To determine your net earnings from self-employment, include amounts you receive under a scholarship as pay for your services that are reported to you on Form 1099-MISC, Miscellaneous Income. If your net earnings are $400 or more, you must pay self-employment tax. Use Schedule SE, Self-Employment Tax, to figure this tax.</h2>

<p>It looks to me like IF there was an expected work component related to that fellowship (teaching a class, running a lab, etc.) then at least some of the income would qualify as SE income which means that it can be used toward a Roth.</p>

4

<p>Is the housing cost for the 12 week internship a double expense? What I mean is…does your son have to rent an apt for 12 months (to live in) and also pay money to stay somewhere for those 12 weeks?</p>

<p>If so, I don’t know if the money for that 12 weeks would be handled differently. I don’t know this, but I’m thinking that it would be kind of like having to pay for your home, and then getting money for a business trip for hotels. We don’t pay taxes on the hotel money for that. But this may fall under something else.</p>

<p>I’m very curious about all of this because my son may face the same thing. He gets a stipend to pay for his 12 month lease…but if he has to travel somewhere for some research and that’s also funded…it doesn’t seem fair that he’d have to pay taxes on that as well.</p>

5

<p>Yes. I’ve read Pub 970 and I’m still not clear. He receives a stipend every month. He doesn’t have to do anything for it. He doesn’t teach. He does have to do the internship during those twelve weeks but according to the fellowship, it’s unpaid. He then receives $1,200 a week during those 12 weeks and they clearly state that it’s for housing at his temporary location. So I’m thinking he’s out of luck on the Roth contribution.</p>

<p>But still wondering, since he has to live in MD for twelve weeks, if it would count as “temporary living expenses”. Of course, the only place I can imagine deducting that would be on schedule A as misc itemized deductions and he probably won’t have enough to itemize. </p>

<p>We’re talking pretty good money here. Any place he could save on taxes would be great.</p>

<p>I haven’t even started thinking about whether he has to file a MD return.</p>

6

<p>mom: He has a twelve month lease at school and therefore, has to pay rent on two places during those twelve weeks. He does have to pay tax on the living allowance, but wondering if he can deduct the rent and travel to MD. They don’t actually pay his rent. They just give him that $1,200 every week he’s away from school.</p>

7

<p>I agree that the only place to put the stipend is on line 7 and that does not qualify as earned income for the purposes of an IRA contribution.</p>

<p>The temporary housing expense is another question. It could theoretically be deducted as miscellaneous itemized deductions but would be limited to the amount over 2% of his AGI. At $1200 a week for 12 weeks, that comes to $14,400. Unless he has a really high AGI, that should be enough to itemize all on its own. He’d also have state income tax to add in.</p>

8

<p>The temporary housing expense is another question</p>

<p>============</p>

<p>This is what I don’t really understand. I guess education issues are handled very differently. But, when an employer pays for “rent” (hotels, etc) while on a several-weeks long business trip, we don’t pay taxes on that. I don’t understand why a student who is already paying taxes on the funds he receives for his primary residence (the 12 month lease), also has to pay taxes on the funds given to pay for temporary housing while working elsewhere for a short time.</p>

9

<p>Because an employee is reimbursed actual expenses for which he has to document the cost. He usually fills out an expense report and attaches receipt. Then it’s not reportable or taxable. If the employee was just given a lump sum without the paperwork, he too would have to report it although he’d be able to deduct the costs on his return.</p>

<p>This student appears toa be given a lump sum. No receipts required. So the income is taxable, but I agree that the actual rent and travel expenses could be deducted.</p>