Think of the question this way: The IRS starts from the position that you have to pay income tax on every dollar you take in, and it’s up to you to prove to them that you don’t through your income tax return.
Think about all the sources of income that you may have:
- fellowship/scholarship (including ones that pay your expenses like tuition)
- TA or RA income
- outside jobs
- banking or investment income
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Essential information to help funded US domestic graduate students with their federal tax returns
Not all of these sources of income need to be reported (and therefore are not taxed). Gifts are not taxable to the recipient and are only taxable to the giver under certain circumstances. Loans are also not taxable income as you will be repaying them in the future.
Even once you add up all your reportable sources of income, you will not be taxed on that full amount because you will have a personal exemption and some deductions. You will figure out the portion of your income that is taxable and how much tax you need to pay through filling out your income tax return.
As a general principle, if you are using any of your income for living expenses, at least that amount of income will be reported and possibly taxed. If all of your income goes toward qualified expenses like tuition, you probably won’t end up paying tax, but you will need to do the math on the proper forms to be certain.
Further reading: Grad Student Tax Lie #1: You Don’t Have to Pay Income Tax
We at Grad Student Finances are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.