Doing Your Taxes

After talking with a number of friends and colleagues about their graduate funding, it has become increasingly clear to me that many grad students are very unclear about how to deal with scholarships and fellowships when it comes time to file their taxes.  For small research grants, this is less of an issue, though they do add up and could cause the IRS to notice you if you file incorrectly.  For large graduate fellowships, however, you are dealing with a substantial chunk of money and it is important that you are informed about how to report that money on your tax return.  Let's begin with a couple of definitions.


The IRS defines a scholarship as:

"an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in the pursuit of his or her studies."

While a fellowship is defined as:

"an amount paid for the benefit of an individual to aid in the pursuit of study or research."

Both scholarships and fellowships may be tax free, as long as you meet a number of key requirements.  The first and most obvious requirement is that you must be currently enrolled in a qualified academic institution.  Beyond that, there are three more important factors that will qualify your funding as tax free:

• The total sum cannot exceed your expenses, otherwise it counts as taxable income (you're supposed to be offsetting your educational expenses, not making a profit after all)

• It cannot be given with the requirement that it not be used for qualified educational expenses, and it also cannot be given for specific non-educational expenses such as room and board

• The scholarship or fellowship does not represent payment for a service, including teaching and research duties in the course of your graduate schooling

So, the good news here is that you might not have to pay taxes on a large portion of your graduate fellowships and scholarships.  The flip side of that, is that any funding you receive (including graduate stipends) that exceed your annual educational expenses (tuition, fees, books, supplies, equipment, etc.), is considered taxable income and must be included as such on your tax return.  Notice also, that any money you receive in exchange for your services (teaching, TAing, working in your advisor's lab) is considered taxable income.

Fortunately for many grad students, it is often the practice of universities to compensate students for their TA or RAships by giving them tuition reductions.  It seems like a no-brainer that tuition reductions would be non-taxable, but that's actually not always the case.  Tuition reductions are considered "qualified" and are non-taxable if you meet the following requirements:

• You are provided the tuition reduction by an eligible educational institution

• You are a grad student providing teaching or research services to a qualified educational institution (not necessarily the one granting you the tuition reduction, interestingly enough)

Hopefully most or all of you receiving tuition reductions meet those two easy requirements, and won't end up having to pay taxes on your tuition reduction.

For a great deal further reading, check out the IRS's webpage on the matter.

Hopefully you all have to worry about taxes, because that means you got yourself some funding!  That's the glass-half-full approach at least.

Until next time, watch out for the IRS,


Casey

The Basics: How much is this going to cost?

Let's face it, school is expensive. Many of us finished our undergraduate degrees with crippling loads of student debt, and the last thing we want to do is add thousands more dollars to that financial burden. To that end, it is very important to spend some time thinking about the costs associated with pursuing graduate education before deciding if it is the right choice for you. The ultimate goal is, of course, to get fully funded for your graduate work, but even in that case understanding the magnitude of the cost of your education can provide important perspective as you work towards your degree.

Make a budget (actually make a few budgets)

For most of us, making budgets isn't very much fun. This primarily stems from the knowledge that even though it's only hypothetical at this stage, you will be spending all of that money some time in the not too distant future. Still, budgets are important and, in this case, they can provide you with important information about how much money you will need to find to pay for grad school.

There are two types of budgets that are particularly helpful in this instance. First, there is the "in school" budget. This budget should contain all of the projected costs of attending graduate school: tuition, books, housing, food, transportation, you name it. Nearly every university has projected estimates of cost of attendance. Pick out a few of your top schools and use their projections of attendance costs to figure out how much it will cost to get your degree. These estimates often encompass expenses that many of us forget to think about, such as health insurance, and take into account residency status (more about this later).

Next comes the "after school" budget. This is more of a grand scale projection and the accuracy of the math gets a bit fuzzier here. The idea here is to factor in the "cost" of not working while you are in school. In other words, how much money could you have made if you had just forgotten about grad school and gotten a job (assuming you could find one). To balance out that depressing value, you then factor in your salary increase after receiving your graduate degree and figure out how long it will take for them to balance out. Estimating the salary increase is, of course, a difficult thing to do. It varies greatly among disciplines, and depends on what sector you intend to work in after earning your degree. An interesting article on this can be found here. Lastly, our goal is to avoid taking on any further debt, but if you have any existing student loans, they go on the negative side of this equation (sorry).

These two budgets will provide you with critical information about the financial costs of attending graduate school. The "in school" budget gives you a fairly accurate estimate of the amount of money you will need to secure/find/raise to get your degree. Knowing this value can help you to figure out how much money to ask for when applying to grants and scholarships. It can also be useful when writing scholarship applications to highlight just how much your education will cost. The "after school" budget is more for your personal use. Figuring out (or at least roughly estimating) the long term costs/benefits of earning a graduate degree can help you to make informed decisions regarding your educational and professional goals. Of course, you're hopefully pursuing a degree in a field about which you are completely passionate, so why should money matter? That's what I keep telling myself, anyway.

Stay tuned,

Casey