Do I Have to Pay Taxes on My Stipend?

A stipend represents financial support often provided for educational pursuits, training, or living expenses. The taxability of a stipend is not always straightforward and depends on several factors, primarily its intended use and the relationship between the payer and the recipient.

Understanding Stipend Taxability

Most stipends are considered taxable income by the IRS unless a specific exclusion applies under tax law. The primary determinant for the taxability of an educational stipend is how the funds are used. Amounts received for qualified education expenses are generally not subject to tax.

Qualified education expenses include tuition, fees, and the cost of books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. An eligible institution must maintain a regular faculty and curriculum and have a regularly enrolled body of students.

Any portion of a stipend used for non-qualified expenses is considered taxable income. These non-qualified expenses typically include room and board, travel, research, clerical help, and equipment or other expenses not required for enrollment or attendance. For example, a stipend covering living expenses while attending school would generally be taxable.

The label given to a payment, such as “scholarship” or “fellowship,” does not automatically determine its tax-exempt status. If the stipend is payment for services, such as teaching or research, it is generally considered taxable income, even if the services are a condition for receiving the stipend. The IRS looks at the underlying nature of the payment to determine its tax treatment.

How Stipends Are Reported for Tax Purposes

The way a stipend is reported for tax purposes depends on whether it is considered wages for services or a non-service-related payment. If the stipend is compensation for services performed, such as teaching or research duties, the payer will typically report these amounts on Form W-2. This form also reports any federal income tax, Social Security, and Medicare taxes withheld from the payments.

For stipends not considered wages for services, the payer may issue Form 1099-MISC. Taxable stipends that are not wages are often reported in Box 3, “Other income,” if total payments to the recipient are $600 or more during the calendar year. This form indicates that the income was paid, but it does not mean that taxes were withheld.

Educational institutions may also issue Form 1098-T, reporting tuition billed or payments received, and scholarships or grants. Box 5 on Form 1098-T includes the total amount of scholarships or grants received by the student during the year. While Form 1098-T provides information, it does not directly indicate the taxable portion of a stipend; recipients must determine this based on their qualified educational expenses.

A recipient may not receive any tax form for a stipend. However, even without a Form W-2 or 1099-MISC, any taxable portion of a stipend must still be reported as income on the recipient’s tax return. Individuals are responsible for tracking their stipend income and related expenses.

Since taxes are often not withheld from stipends not considered wages, recipients may need to pay estimated taxes. Estimated taxes are generally required if an individual expects to owe at least $1,000 in tax for the year from income not subject to withholding. These payments are typically made quarterly using Form 1040-ES. Failure to pay enough tax through withholding or estimated payments can result in underpayment penalties.

Taxation for Specific Stipend Recipients

The tax treatment of stipends can vary for different recipient groups, depending on the nature of their activities and their residency status. Graduate students and postdoctoral fellows often receive stipends that are a combination of compensation for services and support for educational pursuits. For example, a teaching assistant (TA) or research assistant (RA) stipend is usually considered taxable wages if it is compensation for services rendered, even if the services also contribute to their academic progress.

The portion of a graduate student’s stipend used for qualified education expenses, and not in exchange for services, may be nontaxable. This often applies to fellowships or grants purely for academic study. Students must differentiate between amounts received for work performed and amounts intended solely for educational support, as these have different tax implications. Some institutions may issue both a Form W-2 for service-related income and a Form 1098-T for non-service stipends.

Stipends for medical residents and fellows are generally considered taxable wages. These individuals are typically engaged in extensive patient care and training, which the IRS views as services performed for the institution. As such, these stipends are subject to income tax withholding, Social Security, and Medicare taxes, similar to a regular employee’s salary. They will generally receive a Form W-2 reporting their income and withheld taxes.

For nonresident aliens, the taxability of a stipend depends on several factors, including the type of stipend and whether a tax treaty exists between their country of residence and the United States. Income from a U.S. source, such as a stipend, is generally taxable to nonresident aliens. However, certain tax treaties may provide exemptions or reduced tax rates for scholarships, fellowships, or income for personal services. Nonresident aliens claiming treaty benefits typically need to file Form 8833 with their tax return.