How to File Taxes as a Graduate Student

The tax obligations for graduate students present a unique set of challenges. Funding for graduate education arrives in various forms, including assistantship wages, fellowship stipends, scholarships, and tuition waivers. Each of these is governed by a distinct set of tax rules that can create confusion. Understanding the specific tax treatment for each type of support is the first step in navigating the filing process correctly.

Tax Treatment of Graduate Student Funding

Compensation for services, such as a teaching or research assistantship, is a common source of funding for graduate students and is considered wages for tax purposes. Your university will treat you as an employee, meaning federal, state, and FICA taxes are withheld from each paycheck. At the end of the year, the university will issue a Form W-2, which summarizes your total earnings and withholdings.

Scholarships and fellowship grants are funds provided to aid in your studies that do not require services in return. These grants are considered taxable income. However, the portion of the grant used for specific qualified education expenses can be excluded from your income. Unlike wages, taxes are not withheld from these payments.

Many graduate students receive a tuition reduction or waiver as part of their funding package. For those engaged in teaching or research, a qualified tuition reduction is not considered taxable income. For other graduate student employees, a tuition waiver is treated as an educational assistance benefit. Up to $5,250 of this benefit can be excluded from income each year, while any amount above this is considered taxable.

Calculating Taxable Scholarship and Fellowship Income

To determine the taxable portion of your scholarship or fellowship, you must first identify your qualified education expenses. These are costs required for enrollment or attendance, which include tuition and fees. This category also includes books, supplies, and equipment that are required of all students in your course of instruction.

The IRS does not consider all school-related costs to be qualified expenses. Expenses such as room and board, travel, and optional equipment do not qualify. Any portion of your scholarship or grant used to cover these non-qualified costs is part of your taxable income.

To calculate the taxable amount, subtract your total qualified education expenses from your total scholarship and fellowship funds. For example, if you receive a $35,000 fellowship and use it for $15,000 in tuition and $1,500 in required books, your qualified expenses are $16,500. The remaining $18,500 of your fellowship is considered taxable income. This taxable amount must be reported on your tax return even if you do not receive a specific tax form for it.

Key Tax Credits and Deductions

You can lower your tax bill through credits and deductions, with the most common for graduate students being the Lifetime Learning Credit (LLC). This credit is for students taking courses at an eligible educational institution to acquire job skills. The LLC is a nonrefundable credit, meaning it can reduce your tax liability to zero, but you cannot get any of it back as a refund beyond that.

To claim the LLC, you must have paid qualified education expenses. The credit is worth 20% of the first $10,000 in educational expenses, for a maximum of $2,000 per tax return. The credit is subject to income limitations; the ability to claim it is phased out for taxpayers with a modified adjusted gross income (MAGI) over $80,000 ($160,000 for joint returns).

The American Opportunity Tax Credit (AOTC) is another education benefit, but it is not available to most graduate students. The AOTC is restricted to the first four years of postsecondary education. Since graduate students have already completed four years of undergraduate study, they do not qualify, making the LLC the primary option.

If you are paying back student loans, you can take the student loan interest deduction. This allows you to deduct either $2,500 or the actual amount of interest you paid during the year, whichever is less. For 2025, this deduction is phased out for taxpayers with a MAGI between $85,000 and $100,000, or $170,000 and $200,000 for joint filers. You do not need to itemize deductions to claim this benefit.

Information and Forms for Filing

Students receiving wages for assistantships will get a Form W-2 from their university detailing their pay and tax withholdings. This form is used for reporting employment income and is mailed or made available online by January 31st.

Your university may also send a Form 1098-T, which reports tuition payments in Box 1 and scholarships or grants in Box 5. The figures on Form 1098-T are a starting point and may not include all your qualified expenses, such as required books purchased from other vendors.

Institutions are not required to issue a specific tax form for non-service fellowship or scholarship income, though some may provide a courtesy letter stating the total amount paid. Because of this, you must maintain your own accurate records of all income sources, including stipends and grants. You also need to keep receipts and documentation for qualified education expenses, such as required books and supplies, to substantiate your calculations.

Filing Procedures and Estimated Taxes

Report your wage income from Form W-2 on Line 1a of Form 1040. The taxable portion of your scholarship and fellowship income must be reported even if you do not receive a tax form for it. This amount is reported on Schedule 1 (Form 1040), with the total flowing to the main Form 1040.

To claim education benefits, you must complete the corresponding forms. The Lifetime Learning Credit is claimed by filling out and attaching Form 8863 to your tax return. The student loan interest deduction is reported on Schedule 1 (Form 1040).

Since taxes are not withheld from most fellowships and scholarships, you may need to make estimated tax payments. If you anticipate owing $1,000 or more in tax for the year, the IRS requires you to pay taxes quarterly to avoid an underpayment penalty.

You can calculate and pay these taxes using Form 1040-ES or through the IRS Direct Pay online system. The payments are due on four dates:

• April 15
• June 15
• September 15
• January 15 of the following year