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The First Step to Complete Your Grad Student Tax Return (2018)

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There is one vital step grad students need to take when starting to prepare their tax returns. It’s a super simple step, but most often overlooked, and skipping it can lead to an inaccurate return or even overpaying tax. This is the step that you take before you start feeding any numbers to your 1040, your tax software, or your tax preparer, and it is to find and categorize all of your income sources (funded grad students have at least two!).

If you found this video insightful and you want to take the next step to completing your tax return – including one trick to reduce your tax due that your tax software or tax preparer can easily miss – register for my workshop, “How to Complete Your 2018 Grad Student Tax Return (and Understand It, Too!).” The workshop will be released on 1/18/2019. The price is $19.99, but if you sign up for my mailing list in the form below you will receive a coupon code worth $5. I look forward to speaking with you in the live workshop Q&As!

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How Much Tax Will I Owe on My Fellowship Stipend or Salary?

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If you have recently started receiving a fellowship for your graduate or postdoc stipend or salary, you are likely aware that income tax is not being withheld for you. While your fellowship income is taxed as ordinary income at the federal and usually state levels, only in rare cases do universities actually offer you automatic tax withholding. Therefore, it falls to you to manually pay your own tax due either quarterly or once per year. But how do you figure out how much tax you will owe on your income?

Further reading:

monthly tax fellowship

When you start receiving a fellowship and in January of every subsequent year, you should first determine whether you are required to pay quarterly estimated tax both at the federal and state levels. Whether the answer is yes or no, your next step is to calculate how much you should set aside from each paycheck to pay your ultimate tax bill(s) for the year and set up your own system of tax withholding (e.g., an automated transfer to a dedicated savings account following your receipt of each paycheck). Then, you will be prepared to make the necessary payment when the due date arrives.

Further reading:

This post details three methods by which you can calculate the approximately amount of federal tax you will have to pay on each month of fellowship stipend or salary income that you receive.

Method 1: Use Form 1040-ES

Form 1040-ES that you previously filled out is very useful for figuring out how much you should set aside from each paycheck to pay your federal income tax bill. Form 1040 Line 11c tells you the amount of tax you have estimated that you will owe for the year (above what you and/or your spouse will have withheld). Simply divide your value in Line 11c by the number of fellowship paychecks you’ll receive in the calendar year; that is the amount of money you should set aside for federal income tax from each paycheck.

(Note: You might be tempted to divide your value in Line 15, which is how much you’re required to pay in estimated tax in each quarter, by the number of pay periods in each quarter. However, doing this will cause you to owe additional tax when you file your yearly tax return of at least 10% of the total estimated tax.)

Method 2: Use My Super-Simple Spreadsheet

Instead of referring to Form 1040-ES to calculate the amount of money you should set aside in tax, you can instead use a spreadsheet I made (sign up below to download it). (Disclaimer: I take no responsibility for your tax calculations!)

With this spreadsheet, you only have to plug one number, which is your gross monthly fellowship income (cell B1, yellow; a dummy amount of $2,500 is already present). If necessary, you may also change the number of children you have who qualify for the child tax credit (cell B3, in orange) and the amount of itemized and other deductions you plan to claim (cell C7 or D7, in orange).

The spreadsheet then tells you the amount of federal income tax you should expect to pay from just that monthly income if you are single (cell B17, in red) or if you are married (cell C17, in red).

Such a simple spreadsheet makes assumptions, of course, so it’s not appropriate for everyone. Its calculation will be accurate only if:

  • Your only household income for the month is your fellowship income, i.e., you have no side income and your spouse (if any) has no income,
  • You will not be claimed as a dependent on anyone else’s return,
  • You aren’t going to claim any credits aside from the child tax credit,
  • You don’t have any large qualified education expenses that you pay out of pocket, and
  • Your monthly income hasn’t changed greatly over the course of the calendar year.

The advantage of this spreadsheet over the other methods is that it only asks about one month’s income instead of the entire year’s, so it’s a useful tool if you started your fellowship mid-year, for example after holding another position that automatically withheld income tax for you (as long as the amount of tax you had withheld was close to what you actually owed). In that case, you can get close to the right answer for how much tax you should set aside without having to look at your full year’s income and withholdings for Form 1040-ES.

If you’re not sure how to use my spreadsheet or if its assumptions apply to you, just shoot me an email!

Method 3: Use the IRS’s Withholding Calculator

The IRS also provides a withholding calculator that has been updated for 2018. It asks you to enter your filing status, dependency status, job transitions, which credits you plan to take and their amounts, income, tax withholding, and amount of itemized deductions (if any).

This calculator is much more thorough than my simple spreadsheet above. If you have a complicated tax return, this is the more appropriate calculator to use to determine how much money you should set aside for federal income tax payments.

If you have a complicate financial life (e.g., a spouse with income, no income or a much higher income earlier in the year, extra credits or deductions), you should use either Form 1040-ES or the IRS calculator to help you determine how much money to set aside for tax from each paycheck because they take into account many of the elements that will be present on your yearly federal tax return. If you are a single-income household and have a simple financial life, my spreadsheet will get you the answer of how much money to self-withhold from each of your fellowship paychecks faster.

Whichever way you do the calculation, be sure to follow through on setting up your automated self-tax withholding. It’s the next best solution to having tax automatically withheld from your income by your university!

P.S. If you want to estimate how much you will pay in state tax as well as federal, try the Smart Asset calculator. (As of this writing, the calculator primarily reflects tax year 2017.) This calculator is also very simple, so it does not allow for the input of credits. It also includes FICA tax, which does not apply to graduate student fellowships and likely does not apply to postdoc fellowships. If you are using it specifically for estimating your state tax due, keep in mind that fellowship income is not always taxed as ordinary income at the state level. (For example, fellowship income is exempt from tax in Alabama.)

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How to Find, Apply for, and Win a Fellowship During Your PhD or Postdoc

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Applying for fellowships is an essential component of your PhD training. My fellowship application advice is to apply for a few relevant fellowships as a prospective PhD student, whether you are coming from an undergraduate degree, master’s degree, job, or other fellowship. It’s also a great idea to keep applying for fellowships and grants throughout your PhD and postdoc for any years when you’re not already a fellow.

The advice in this article is on why, where, and how to apply for fellowships successfully. It has a particular focus on outside fellowships that are portable (you can use them at any institution), remunerative (they provide at least stipend/salary support), and broad (many research fields are eligible).

Fellowships at the graduate level are similar to scholarships at the undergraduate level in that they are awards that are given based on merit, and sometimes only a narrow slice of students is eligible. They are “free money” similar to scholarships and grants in the sense that they do not have to be repaid. What is different is that fellowships typically pay part or all of a PhD student or postdoc’s stipend/salary and may also include some money for tuition and fees. However, as a fellow you do have the responsibility of making progress in your research or else your fellowship is not likely to be renewed. PhD-level fellows are free to focus their attention solely on their research (in addition to classes in the early stage of training).

Further Reading:

fellowship

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Why Apply for Fellowships

Regularly applying for outside funding is an expectation in graduate school (and often before and after) that should be made more explicit. Even if you are fully funded by your program or group, you will benefit from applying for fellowships throughout your PhD and postdoc. The only reason to forgo submitting at least one fellowship application in a given year is if you are already funded by an outside fellowship in the upcoming year.

Further Reading: Why You Should Apply for Fellowships Even If You’re Fully Funded

There are numerous reasons apply for fellowships regularly, some of which apply even if you don’t ultimately win a fellowship.

1) A Higher Stipend/Salary

Often, outside fellowships are structured to pay a higher stipend than what is typically paid to a graduate student or postdoc. This is especially true for the prestigious, competitive, national fellowships. Winning an outside fellowship that awards a higher stipend/salary is one of the very few ways a graduate student or postdoc can secure a significant raise within the same career stage. Even if the fellowship pays a stipend/salary lower than the baseline amount for the department, typically the department will supplement the fellowship stipend/salary up to or even above the baseline pay as a gesture of appreciation to the student or postdoc for winning the fellowship.

2) Greater Independence

Depending on the PhD’s stage and department, an outside fellowship may confer an increased degree of research independence. For example, a fellow may be able to set up a new collaboration, pursue a side project, or complete additional lab rotations when a graduate student funded by another means would not be given permission. This is because the fellow’s funding is not tied to working on any specific project the way a grant would specify.

3) Negotiation Power

Virtually all PhD students and many postdocs assume there is no room for negotiation in their funding package. However, there are two points at which negotiation is possible: Upon admission to a program and upon winning an outside fellowship (best if combined). If you are funding yourself through a fellowship, that’s money that your advisor/department does not have to spend on you (assuming they would have), and that money has now been freed up for other purposes.

After finding out that you have won a fellowship, you can tactfully ask your advisor or department chair if it is possible for you to receive an extra benefit. You could ask for an increase in pay, a one-time or yearly bonus, or one of the extra degrees of independence listed above.

4) Excused from Work

One aspect of PhD funding that is not necessarily widely discussed is the difference between being funded by a fellowship and being funded by an assistantship.

A research assistant, teaching assistant, or graduate assistant is virtually always an employee of her university (as well as a student). You can be sure of this status if you receive a W-2 at tax time. The graduate student’s stipend or salary is being paid for work she does: teaching, research, or another type of service.

A fellowship, on the other hand, is an award, and there is not supposed to be any work requirement tied to it, although in practice the PhD student must of course make adequate degree progress.

There is not much of a functional day-to-day difference between graduate students funded by research assistantships in which the research is included in their dissertations and graduate students funded by fellowships. In both cases, 100% of the graduate student’s time (less time spent completing courses) can be devoted to his dissertation.

However, being funded by a fellowship makes an enormous difference in the day-to-day life of a graduate student who would otherwise be funded by an assistantship that requires non-dissertation-related work. That work requirement is typically 20 hours per week. Winning a fellowship excuses the graduate student from that work requirement, meaning that 20 hours per week can be devoted to research that furthers the student’s degree progress. This might very well shorten the time it takes for the student to complete his PhD.

5) CV-Booster

One of the unsung but most important benefits of winning a fellowship, particularly a prestigious national fellowship, is its effect on your CV. Once one fellowship committee has deemed you worthy of funding, that stands as a testament to your ability that is seen by every subsequent funding committee. Winning your first fellowship gives you momentum toward career success. Assuming you continue to be an excellent candidate, winning subsequent fellowships and grants becomes more likely.

6) Shows Initiative/Effort

In my opinion, applying for at least one outside fellowship concurrently with applying for graduate school is an unspoken requirement. Being able to say on your grad school application or in your interviews that you have applied for outside funding (even if you don’t ultimately win) shows the faculty members reviewing your application that you take initiative and are ambitious. Even once you are settled into a department and group in grad school, attempting to fund yourself will almost certainly be viewed favorably by your advisor, even if you are not awarded a fellowship.

7) Applying Forces You to Frame and Justify Your Research

Writing a fellowship application can be a wonder pause and possibly reset point in your research progress. You have to step back from your day-to-day work, think about the underlying motivations and aspirations for your project, and explain why they (and you) are worth being funded. This exercise alone is likely to benefit your research and experimental design.

8) Good Practice

The final benefit of applying for fellowships is that it’s good practice. If you stay in academia or research long-term, applying for grants is likely to become part of your regular work rhythm. You may as well start early, gain experience, and hone your message.

Download a List of Fellowship Application Resources

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When to Apply for Fellowships

Most fellowship application deadlines are in the fall, though a few occur at other points in the academic year. Over each summer, you should create a list of the fellowships you plan to apply for in the upcoming academic year, including ones with deadlines later in the year. Create calendar reminders leading up to each fellowship deadline to ensure that your applications stay on track.

Where to Find Fellowship Opportunities

Your first stop for finding fellowship opportunities should be your research and/or program advisor (postdoc, graduate, or undergraduate). Ask him or her what fellowships you should consider applying to and what fellowships other students and postdocs at your same stage apply to. You can also ask your peers which fellowships they have applied to in the past or are applying to now.

Another great place to look are websites that maintain databases of fellowship opportunities. Your university or department may cultivate such a list. In the next section, I have provided my own list of broad fellowships to consider. Other great databases can be found at:

Finally, try a simple Google search with keyword combinations of “fellowship” or “scholarship” along with anything particular to you, such as your field, research interests, career stage, demographics, standout qualities, etc. You may find a fellowship or scholarship that is tailored to you that your peers wouldn’t qualify for and therefore overlooked.

When looking for fellowship descriptions and listings, always consider both the large, well-known programs that fund a lot of fellows and lesser-known opportunities that may be a good match for you in particular, either because of your demographics or your research area. All of the advantages of fellowship funding apply to both types.

Fellowship Programs for Graduate Students and Postdocs

Below is a list of portable fellowship programs that are granted to a large number of fellows each year in a broad array of fields. These fellowships provide full or nearly full levels of stipend/salary support, often in addition to tuition and fees.

American Association of University Women Dissertation Fellowships

  • Website
  • Fields: All
  • Eligibility: US citizen or permanent residents; current PhD students who will complete their dissertations between April 1 and June 30, 2020
  • Award: $20,000
  • Number of Awards: Not specified
  • Deadline: 11/1/2018

Department of Defense Science, Mathematics & Research for Transformation (SMART)

  • Website
  • Fields: Aeronautical and Astronautical Engineering, Biosciences, Chemical Engineering, Chemistry, Civil Engineering, Cognitive, Neural, and Behavioral Sciences, Computer and Computational Sciences and Computer Engineering, Electrical Engineering, Geosciences, Industrial and Systems Engineering (technical tracks only), Information Sciences, Materials Science and Engineering, Mathematics, Mechanical Engineering, Naval Architecture and Ocean Engineering, Nuclear Engineering, Oceanography, Operations Research (technical tracks only), Physics
  • Eligibility: Prospective and current graduate students able to accept internships and one year of post-graduation employment with the DoD for each year of support
  • Award: 1-5 years of support; $25,000-38,000/year stipend, full tuition and fees, $1,200 health insurance allowance, $1,000 miscellaneous supplies allowance
  • Number of Awards: 65 to PhD students in 2018
  • Deadline: 12/1/2018

Department of Energy Computational Science Graduate Fellowship (DOE CSGF)

  • Website
  • Fields: Broad STEM as long as applicant uses mathematics or computers
  • Eligibility: Prospective and first-year PhD students
  • Award: up to 4 years of support; $36,000/year stipend, full tuition and fees, academic allowance of $5,000 in the first year and $1,000 per year following
  • Number of Awards: not stated (there are ~80 current fellows)
  • Deadline: not yet announced; previous cycle was 1/17/2018

Ford Foundation Dissertation

  • Website
  • Fields: American studies, anthropology, archaeology, art and theater history, astronomy, chemistry, communications, computer science, cultural studies, earth sciences, economics, engineering, ethnic studies, ethnomusicology, geography, history, international relations, language, life sciences, linguistics, literature, mathematics, performance study, philosophy, physics, political science, psychology, religious studies, sociology, urban planning, and women’s studies; interdisciplinary ethnic studies programs and other interdisciplinary programs
  • Eligibility: Current PhD students who will complete their dissertations in the 2019-2020 academic year; US citizens, nationals, permanent residents, and DACA recipients; Alaska Natives (Aleut, Eskimo, or other Indigenous People of Alaska), Black/African Americans, Mexican Americans/Chicanas/Chicanos, Native American Indians, Native Pacific Islanders (Hawaiian/Polynesian/Micronesian), Puerto Ricans
  • Award: 1 year of support; $25,000/year stipend
  • Number of Awards: ~36
  • Deadline: 12/6/2018

Ford Foundation Postdoctoral

  • Website
  • Fields: American studies, anthropology, archaeology, art and theater history, astronomy, chemistry, communications, computer science, cultural studies, earth sciences, economics, engineering, ethnic studies, ethnomusicology, geography, history, international relations, language, life sciences, linguistics, literature, mathematics, performance study, philosophy, physics, political science, psychology, religious studies, sociology, urban planning, and women’s studies; interdisciplinary ethnic studies programs and other interdisciplinary programs
  • Eligibility: Individuals who completed or will complete their PhDs or ScDs between 12/6/2011 and 12/6/2018; US citizens, nationals, permanent residents, and DACA recipients; Alaska Natives (Aleut, Eskimo, or other Indigenous People of Alaska), Black/African Americans, Mexican Americans/Chicanas/Chicanos, Native American Indians, Native Pacific Islanders (Hawaiian/Polynesian/Micronesian), Puerto Ricans
  • Award: 1 year of support; $45,000/year stipend
  • Number of Awards: ~24
  • Deadline: 12/6/2018

Ford Foundation Predoctoral

  • Website
  • Fields: Biological & Biomedical Sciences, Ecological, Environmental, & Evolutionary Sciences, Education, Engineering, History, Interdisciplinary Study (Social Sciences & Humanities), Literature & Languages, Performance Studies, Communication, & Art History, Philosophy & Religious Studies, Physical Sciences, Mathematics, & Computer Science, Psychology, Social Sciences, Social/Cultural Anthropology, and Archaeology, Sociology
  • Eligibility: Prospective and current PhD students with at least 3 years of study remaining; US citizens, nationals, permanent residents, and DACA recipients; Alaska Natives (Aleut, Eskimo, or other Indigenous People of Alaska), Black/African Americans, Mexican Americans/Chicanas/Chicanos, Native American Indians, Native Pacific Islanders (Hawaiian/Polynesian/Micronesian), Puerto Ricans
  • Award: 3 years of support; $24,000/year stipend
  • Number of Awards: ~70
  • Deadline: 12/13/2018

Hertz Foundation

  • Website
  • Fields: Applied physical, biological, and engineering sciences or mathematics
  • Eligibility: Prospective and first-year PhD students
  • Award: Up to 5 years of support; $34,000/year stipend and full tuition
  • Number of Awards: Unspecified; 1,200 in the history of the program
  • Deadline: 10/24/2018

Life Sciences Research Foundation

  • Website
  • Fields: Life sciences
  • Eligibility: PhD or MD recipients (awarded less than 5 years ago); US citizens working in any geographic location and non-US citizens working in US laboratories
  • Award: 3 years of support; $52,000/year for salary and $10,000/year for research
  • Number of Awards: 15-25
  • Deadline: 10/1/2018

National Defense Science and Engineering Graduate Fellowship (NDSEG)

  • Website
  • Fields: Aeronautical and Astronautical Engineering; Biosciences; Chemical Engineering; Chemistry; Civil Engineering; Cognitive, Neural, and Behavioral Sciences; Computer and Computational Sciences; Electrical Engineering; Geosciences; Materials Science and Engineering; Mathematics; Mechanical Engineering; Naval Architecture and Ocean Engineering; Oceanography; Physics
  • Eligibility: Prospective and current (first or second year) PhD students; US citizens
  • Award: 3 years of support; $3,200/month in stipend, up to $1,200/year in health insurance, and full tuition and fees
  • Number of Awards: ~200 in 2016
  • Deadline: Not yet announced; previous cycle was 12/7/2018

National GEM Consortium

  • Website
  • Fields: Applied science and engineering
  • Eligibility: Prospective and current graduate students; under-represented students (American Indian/Native, African American/Black, Hispanic American/Latino); US citizens or permanent residents
  • Award: $16,000/year stipend (to be supplemented by the university) in the first year and guarantee of full tuition and fees and stipend through the fifth year
  • Number of Awards: ~300 in 2018
  • Deadline: 11/12/2018

National Physical Science Consortium

  • Website
  • Fields: Astronomy, Chemistry, Computer Science, Geology, Materials Science, Mathematical Sciences, Physics, and their subdisciplines, and related engineering fields: Chemical, Computer, Electrical, Environmental, Mechanical
  • Eligibility: Prospective and current graduate students available for two summer internships; US citizens
  • Award: Up to 6 years of support; $20,000/year stipend, full tuition and fees
  • Number of Awards: Varies
  • Deadline: Typically 11/30

National Science Foundation Graduate Research Fellowship Program (NSF GRFP)

  • Website
  • Fields: STEM and STEM education
  • Eligibility: Prospective and current master’s or PhD students (current graduate students can apply only once either in their first or second year)
  • Award: 3 years of support; $34,000/year in stipend, $12,000/year to institution
  • Number of Awards: 1,500
  • Deadline: Between 10/22/2018 and 10/26/2018 depending on field

Paul and Daisy Soros

  • Website
  • Fields: Unrestricted
  • Eligibility: Prospective and current (first or second year) graduate students; immigrants and the children of immigrants under age 30
  • Award: 1 or 2 years of support; $25,000/year stipend, 50% of tuition and fees up to $20,000 per year
  • Number of Awards: 30
  • Deadline: 11/1/2018

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How to Create a Winning Fellowship Application

You can’t throw together an excellent fellowship application in a weekend. They take a great deal of time and effort to conceive, write, re-write, and improve with feedback. Below are the steps you must follow to submit a potentially winning fellowship application.

1) Find Fellowships that Are a Good Match for You

You will dramatically increase your odds of winning a fellowship if you are selective about which ones you apply to. Don’t waste time applying to fellowship programs that have been cultivated for candidates with characteristics or research interests that you don’t share or for which you are unambiguously unqualified.

2) Read the Fellowship Application Components and Prompts Carefully

It may seem like all fellowship applications are similar, but there are actually overt or subtle differences among them. Most if not all fellowship programs will want to hear about your research or research interests (research statement) and also about you personally (personal statement), but the particular aspects of each that they are looking for may differ. It’s vital to fully answer the specific prompts for each different application. Make it easy for the evaluators to confirm that you have addressed every component of their rubrics, e.g., intellectual merit and broader impacts (for the NSF GRFP), career aspirations, etc.

You may be able to use similar points and even prose across your fellowship applications, but each application statement must be carefully tailored.

Early on, it’s also important to identify the various non-statement components of the fellowship application so you can gather them without rushing. These components may include letters of recommendation, test scores, and transcripts.

You may be required to receive your current university’s permission (nomination) to apply for a fellowship, so you need to be aware of the requirements and deadline for applying for that pre-selection stage.

3) Select and Notify the Writers of Your Letters of Recommendation

Give the writers of your letters of recommendation plenty of notice regarding the fellowship applications you request that they submit to (at least a couple months). It is helpful to share with them a spreadsheet or similar in which you can list all the different applications, their due dates, and submission links for each application season.

Different fellowship applications may require different types of letter writers, so you may need to reach out to faculty members or other mentors who are not your primary research advisors for one application or another.

Give faculty members who have never written you a letter of recommendation in the past an extra-long period of time to prepare the letter and offer to meet with them to discuss your application.

4) Begin Drafting Your Fellowship Application Materials Well in Advance of the Deadline

Once you are finished preparing, it’s time to start writing. Again, writing well in advance of the application deadline is imperative. You need to give yourself time for high-quality research, reflection, and crafting. Finish a draft, walk away from it for a few days or a week, and then come back with fresh eyes. At any stage you may ask for feedback: outline, sketchy draft, full draft, or the I-think-it’s-complete draft.

5) Write for the Proper Audience

As with any piece of writing, it’s vital to write for a certain audience. In the case of fellowship applications, you must understand, possibly by reading between the lines, what the evaluators of the fellowship applications are looking for. This is not to say that you will simply tell them what they want to hear, but rather that you will highlight the specific components of your application that you know they have to or want to see included. You should also use language that the evaluator will understand, which likely does not include obscure jargon.

6) Seek Input from Advisors, Peers, and Past Winners

To create a competitive fellowship application, you need outside eyes and expertise. You can get feedback and tips from:

1. Your Research and/or Academic Advisor(s)

Your undergraduate or graduate advisor is the best person to read your statements and give you feedback from his or her perspective as a career researcher who has advised other fellowship applicants and winners. He or she may even be overseeing the project you have proposed in your application, in which case the feedback will be even more specific and useful. Your advisor is likely also writing you a letter of recommendation, so it’s a great idea to give him or her full awareness of what you’re proposing.

2. Other Research and/or Academic Mentors

You may reach out to other faculty or staff members at your current or past institutions to read and provide feedback on your fellowship application. Your university may even designate a specific faculty or staff member as a mentor for certain fellowship applications. Your current institution may hold workshops and seminars to guide you in your applications, which you should make every effort to attend.

3. Your Peers Applying for Fellowships

Forming a reading group for one or more specific fellowship applications is among the most powerful steps you can do to take your application from ordinary to extraordinary. Your group should be composed of your peers of a similar stage and field who are applying to one or more of the same fellowships. You should agree on deadlines for producing outlines and drafts of your statements and read one another’s work at one or more of the stages to help one another improve the ideas and writing therein.

4. Prior Fellowship Winners

You can learn from the past awardees of the fellowships you are applying to. The first network to tap is your personal one: your friends and (older) peers from your college or graduate school who have previously won the fellowship you are applying to. You can also search for advice from fellowship winners online. Ask these winners to share their tips with you, in particular anything that is unique to that one fellowship. Some past winners may even share their statements with you as a model, but if you do read them be quite careful to avoid even inadvertent plagiarism.

7) Finalize Your Fellowship Application

Once you have incorporated the feedback you receive from your mentors and peers, it’s time to finalize your statements and application. Follow all formatting specifications precisely, and even beyond that format your statements so that they are easy to for the evaluators to read.

Be sure to proofread the final version of your statements carefully. While you can complete this step yourself, it is probably even better to ask a friend or family member who has not yet read your statement to go through it with fresh eyes to catch any grammatical, spelling, or formatting mistakes. You might even be able to use your university’s writing center for this step.

Again, don’t wait to the last minute to load your application materials into the application portal. Do this a couple of days in advance of the deadline so you can be sure you have prepared all the materials properly. Finally, you’re ready to submit!

The main advice in this section is to give your application plenty of time and careful attention and to ask for feedback from anyone willing to give it to you!

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How to Be an Excellent Fellowship Applicant

This last subject is arguably the most important one of this entire article. Submitting a large number of marvelously written fellowship applications will not propel a weak applicant to success. That is to say, prior to and concurrently with searching out and applying for fellowships, you should also take steps to increase your strength as an applicant.

Of course, fellowships vary in what they look for in a candidate. But there are commonalities:

  • Research experience with demonstrated results and/or deliverables (e.g., papers, posters, presentations, patents).
  • High grades and test scores.
  • Strong and detailed letters of recommendation.
  • Community service.
  • Stand-out experiences.
  • Career commitment to research, teaching, service, etc. (whatever is in line with the ideals of the fellowship program)

It’s a great idea to keep track of accomplishment or activity you participate in throughout your college years and beyond with a few annotations about your contributions to draw upon when preparing fellowship applications.

At the end of the day, what makes you an excellent fellowship applicant has a great deal of overlap with what makes you an excellent undergraduate or graduate student or postdoc, effective researcher, and personable individual. Effort you put toward making yourself a stronger fellowship applicant will benefit many other areas of your life as well.

How Fellows Should Prepare for Tax Time at the Start of the Academic Year

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Most Americans don’t like to give any thought to their taxes between when their tax returns are due in mid-April and when their income forms arrive at the end of January. (Scratch that: they don’t want to think about tax anytime outside of the two weeks in early April when they scramble to assemble their returns!) The exception is when they start a new job and are asked to set up their income tax withholding by filing a W-4.

fellowship tax September

A version of this post first appeared on GradHacker.

Graduate students and postdocs – lucky us – have extra opportunities to consider tax withholding, namely every time we change funding from a compensatory source to a non-compensatory source or vice versa. Compensatory funding for your stipend comes from your job as a research, teaching, or graduate assistant. Non-compensatory funding for your stipend comes from fellowships and training grants that are technically awards, not payment for work. (If that distinction makes little sense to you, you’re not alone!) Similarly, postdoc salaries can come in compensatory and non-compensatory versions as well.

As the vocabulary that universities use for these types of funding varies somewhat, here’s how you can definitively determine which type you receive: Compensatory pay is reported at tax time on a W-2. The broadest statement that can be made about non-compensatory pay is that it isn’t reported on a W-2. Universities have different methods for reporting this pay, which include: a 1098-T in Box 5, a 1099-MISC in Box 3, a 1042-S (for international trainees), a courtesy letter, and not at all.

When it comes to tax withholding, compensatory pay is handled by universities the same way employee pay is handled by employers: The trainee files a W-4, which calculates the fraction of each paycheck that will be sent to the IRS throughout the year. Each spring, the taxpayer files a tax return that delineates her exact amount of tax due, and any excess money withheld is refunded or any additional tax due is paid. That system is relatively easy to grasp because it’s the same as what all employees in the US experience.

Fellows (by which I mean trainees whose stipends/salaries are non-compensatory) usually have a different experience with respect to tax withholding, which is the focus of this post.

A small number of universities allow fellows to set up tax withholding using a W-4, just like trainees who receive compensatory pay. If you are a fellow at one of these universities, file your W-4 and join the rest of the country in putting taxes out of your mind until next spring.

However, the large majority of universities do not handle any tax withholding on behalf of their fellows. This does not necessarily exempt those fellows from sending tax payments to the IRS throughout the year; by default, the IRS expects to receive regular payments from each taxpayer. Instead, fellows must engage with the 1040-ES and estimated tax payments, which are more typically used by the self-employed. (But: graduate students are not self-employed!) This omission of services on the part of the universities can be especially challenging for first-year graduate students on training grants or receiving fellowships, who not only may be unfamiliar with the quirks of non-compensatory pay but also the US tax system at large, especially if they have never been a full-time employee.

Further reading: The Complete Guide to Quarterly Estimated Tax for Fellowship Recipients

Fortunately, there are only a few simple steps that fellows need to take at the start of the academic year to prepare for their tax due next April:

1) Use Form 1040-ES to estimate the amount of additional tax you will pay for 2018.

Form 1040-ES is a one-page form (page 8) that assists you in making a high-level estimation of the amount of tax you will owe for this year. (If you want even more information, check out Publication 505.)

You will enter your expected adjusted gross income for 2018 in line 1. If your grad student stipend or postdoc salary is your only income, simply multiply the income on your paycheck by the number of paychecks you expect to receive in 2018. If you have a side income or were otherwise employed prior to starting your fellowship/training grant, add in that income as well.

The worksheet will then walk you through a truncated version of the calculations you will make on your tax return: subtracting your deduction (standard or itemized), calculating your tax due, and factoring in your credits and self-employment tax (from your side income, possibly).

In the end, you will have three relevant numbers: the estimated amount of tax you will owe for 2018 (line 11c), the amount you have to pay throughout 2018 to avoid being penalized (line 12c), and the amount of withholding expected in 2018 (line 13) (for instance, from your job or compensatory pay prior to your switch to non-compensatory pay).

2) Determine whether you are required to make quarterly estimated tax payments, and do so if you are.

If for 2018 you expect to have more tax withheld than the amount required to avoid a penalty, once again you can forget about taxes until next spring.

If for 2018 you will owe at least $1,000 in additional tax, you are required to make quarterly estimated tax payments. (Exception: If your withholding in 2018 is greater than the smaller of 90% of your 2018 tax due or 100% of your 2017 tax due if your 2017 tax return covered 12 months. See Figure 2-A of Publication 505.) You will send in to the IRS one-quarter of your additional tax due (line 15) by September 17, 2018 (for the period of June to August), January 15, 2019, April 15, 2019, and June 15, 2019. You can pay by mail using the vouchers in Form 1040-ES or online at www.IRS.gov/payments.

If in 2018 you will owe less than $1,000 in additional tax, you are not required to make quarterly estimated tax payment, but you will owe a lump sum at tax time.

3) Set up a system of self-withholding to prepare for your tax due quarterly or yearly.

Whether you are required to pay quarterly estimated tax or a lump sum at tax time, the best practice to handle those payments is to prepare for them with each paycheck. Basically, you should simulate your own personal tax withholding system to avoid being forced to come up with a large sum quarterly or yearly, which can be a shock to your budget or cash flow.

Divide your tax due, whether quarterly or yearly, by the number of paychecks you’ll receive in the period it covers. Transfer that amount of money each time you are paid to a dedicated savings account for tax payments. Then, when you pay your quarterly or yearly tax, draw your tax due from the “withholdings” you’ve created in that savings account. (You can also leave this money mixed in with other cash in your checking or savings accounts, but be sure to keep careful track of the amount you have earmarked for taxes so you don’t dip into it for other purposes.)

For the time that you receive non-compensatory pay, you’ll have to stay on top of making your quarterly estimated tax payments or verifying that you are not required to make them. First-year graduate students in particular should redo Form 1040-ES in January for their 2019 income, because while receiving non-compensatory pay for only the fall semester might not meet the requirement for paying quarterly estimated tax, receiving it for the entire calendar year probably will.

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How to Financially Manage Your NSF Graduate Research Fellowship

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Congratulations on being awarded the National Science Foundation (NSF) Graduate Research Fellowship (GRF) (or a similar remunerative, competitive, national fellowship)! Whether you’re a prospective grad student or a current first- or second-year PhD student, this fellowship is a great boon to your research, your CV, and almost certainly your finances. However, you may not yet realize that your finances will become a bit tricky once you start receiving your fellowship. With the help of this article, you can avoid the pitfalls associated with fellowship income and fully capitalize on the benefits.

NSF GRFP stipend

The NSF GRFP’s Negotiation Power

I’m sure you didn’t miss this headline info about the NSF GRFP: The fellowship pays you a stipend of $34,000 plus $12,000 of educational expenses to your institution for three years. Awesome! At the majority of universities in the US, that stipend amount is well above what you would be paid if you didn’t receive the fellowship, so you’ve effectively achieved a raise for the next three years.

But the good news doesn’t stop there: Your university/department might confer even more benefits upon you for winning independent funding. If the administration isn’t forthcoming about these additional benefits, it is appropriate to inquire about them.

Independence

Your new outside funding may give you a degree of independence in your research that you wouldn’t otherwise enjoy. This is highly dependent on your field, department, and advisor, but the fellowship may enable you to take your doctoral research in a direction that you advisor couldn’t or wouldn’t have supported without it. Perhaps you could take a risk on a side project, establish a new collaboration, or take extra time to rotate through a lab to gain new skills.

Additional Funding

At many universities, there is a standard offer of additional funding for winning a multi-year, lucrative fellowship like the NSF. This offer could come in one or more forms, such as:

  • a guarantee of funding for additional years
  • a one-time bonus
  • a stipend supplement above $34,000 while you have the fellowship
  • a stipend supplement after the fellowship concludes (e.g., up to $34,000/year for your remaining time in graduate school)

Not all departments offer additional funding to NSF GRFP recipients, but it’s worth inquiring about with your advisor, the administration, and current NSF fellows at your university. Stipend supplements during the time that you receive the NSF GRF are more common in high cost-of-living cities where the departmental base stipend is near $34,000/year to begin with. For example, searching “NSF” in the PhD Stipends database reveals stipend supplements awarded during the NSF GRFP years to students at the University of California at Berkeley, Northwestern University, and Columbia University, while a student at the University of California at San Diego writes that he/she received no funding incentive for winning the NSF GRF.

For Prospective Graduate Students

You’ll never have more negotiation power than you do as a prospective graduate student with an outside fellowship in hand. Unfortunately, you don’t have a lot of time to negotiate as the NSF GRFP awards list comes out approximately two weeks before grad school decision day, April 15.

Further reading: Vote with Your Feet, Prospective Graduate Students

As quickly as possible, you need to clarify if the offers from the universities you are still considering are going to be sweetened at all now that you have your fellowship. If the financial package from your preferred university isn’t up to par with your other offers (after considering cost of living differences), you can tactfully ask if a bonus, stipend supplement, or guarantee of future funding is possible.

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Budgeting with Your Fellowship Income

There are two vital questions you need to ask of your department before you can begin creating a budget for your NSF GRF stipend.

  1. After the fellowship ends, what will my stipend be?
  2. How frequently is my fellowship disbursed?

Accelerate Progress on Financial Goals

In my ideal personal finance-oriented world, an NSF fellow would live on (less than) the base stipend from his department and put all the excess income received toward growing his wealth. There are a few advantages to that approach:

  • Your lifestyle roughly matches that of your peers in your department.
  • You can relatively quickly achieve financial goals such as saving or debt repayment.
  • If your income is set to drop once the fellowship ends, you avoid acclimation to the higher, temporary income and don’t have to make major lifestyle sacrifices once the three years are up.

Some financial goals you could work on during the time you receive the additional fellowship funds are:

  • Eliminating any troublesome debt (e.g., credit card balances, medical debt, car loan)
  • Saving up cash for short-term needs and expenses (e.g., emergency fund, targeted savings accounts)
  • Investing for long- and mid-term goals (e.g., retirement, house down payment)
  • Pay down student loans

Further reading:

This strategy is easiest to implement for graduate students who start the NSF GRF after one or more years in grad school. Just put all of your ‘raise’ toward financial goals and don’t change anything about your lifestyle! Prospective grad students will have to be more conscious about setting up their grad student lifestyle on a lower income than they will start out with.

Preparing for the Post-Fellowship Income Drop

If you choose to upgrade your lifestyle with your fellowship stipend, be careful to maintain any long-term financial contracts at a level that will be sustainable for you after your income drops (if it will). The two key areas to watch out for are housing and transportation expenses. While it is possible to reduce your spending in either of these areas during grad school, it is a painful process, so it is preferable to lock in your spending in those areas at a level that you can maintain long-term.

Budgeting with an Irregular Income

Sometimes, fellowships are disbursed to the recipient at a frequency other than monthly, e.g., once per term. This schedule can cause issues for budgeting, which is usually framed as turning over each month.

One of the advantages of an infrequent disbursement schedule is that you are paid at the beginning of the period rather than the end, so the money you need throughout the period is already available to you. However, you may not be able/inclined to use typical budgeting software functions and prefer to set up your own budgeting system.

One of the most useful budgeting concepts for people with irregular incomes is that of fixed vs. variable expenses. At the beginning of your budgeting period, project the fixed expenses that will be paid during the period, such as your rent/mortgage, debt payments, certain utilities, subscriptions, etc. Then allocate your remaining income to your variable expenses at a frequency that is convenient for you. For example, you can estimate the variable utility bills that you may pay monthly during the period, plan to spend no more than a certain amount of money each week on groceries, and give yourself a lump sum of money for entertainment for the entire period to be spent as opportunities arise. In this way, allocate your fellowship disbursement so that you are sure that your expenses won’t exceed your income (leaving some buffer for unexpected expenses).

Income Tax Implications of the NSF GRFP

Your NSF GRFP stipend is subject to federal income tax. (It is usually subject to state and local income tax as well, but there are some exceptions.)

Further reading:

However, the taxation of fellowship stipends is handled completely differently by universities than assistantship pay.

Tax Reporting

While assistantship pay is reported on a W-2, fellowship stipends are not required to be reported in any particular way.

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A large fraction of universities, possibly the majority, do not report outside fellowship stipends on any official tax form. At most, the fellow might receive a courtesy letter, which is an informal letter stating the amount of the fellowship stipend received during the calendar year.

Some universities report fellowship stipends on Form 1098-T in Box 5 (along with other scholarship and grant income).

A small minority of universities report fellowship stipends on Form 1099-MISC in Box 3.

Whatever reporting mechanism used or not used, the important information to bring to your tax return preparation process is the amount of fellowship stipend paid to you during the calendar year. From that point, the fellowship stipend income is treated the same as any other fellowship/scholarship/grant income, and (possibly after some adjustments) it will ultimately be taxed as ordinary income.

Further reading:

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Quarterly Estimated Tax

While you are required to pay federal and usually state income tax on your fellowship stipend, the vast majority of universities do not offer automatic income tax withholding on your fellowship stipend as they normally do for employee pay. (You should inquire whether automatic withholding is an option and use it if so, but the remainder of this section assumes it is not offered.)

This means that you will receive 100% of your gross fellowship stipend instead of your stipend net of income tax as you would assistantship pay. However, the IRS still expects to receive income tax payments throughout the year, so you will have to look into filing quarterly estimated tax.

Further reading: The Complete Guide to Quarterly Estimated Tax for Fellowship Recipients

As a default position, you should assume you are responsible for paying quarterly estimated tax. It’s possible that you won’t be required to in the year you switch on or off of the fellowship or if you’re married to someone with a high income and high withholding, but even in those cases it’s prudent to check.

The way you calculate your quarterly estimated tax due (and figure out if it’s required of you) is by filling out Form 1040-ES. That form will give you the amount of the payment you are supposed to make four times per year and an estimate of your total tax due for the year. You can make the payment online at IRS.gov/payments or through a host of other mechanisms.

Whether or not you are required to file quarterly estimated tax, it’s a great idea to set up a personal system that simulates automatic tax withholding. Open a separate savings account labeled “Income Tax” and transfer in the fraction of each paycheck you receive that you ultimately expect to pay in tax each time you are paid. Then, draw from that savings account when you make your quarterly or yearly tax payments.

This upcoming weekend I’m running an online workshop to help fellows file quarterly estimated tax. This is my first time giving the workshop, but if it goes well I plan to repeat it at least twice per year. If you would like to join my mailing list to be notified about future iterations of this workshop, please enter your information in the form immediately following this paragraph or at the end of the article.

Investing Implications of the NSF GRFP

The upside of receiving the NSF GRF is that your income is most likely higher than it would have been, which means you have an increased ability to achieve financial goals during graduate school such as debt repayment, saving, and/or investing.

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The downside of receiving the NSF GRF is that the stipend is not considered “taxable compensation” or “earned income.” It is taxable income, as discussed in the previous section, but it is not “compensation” or “earned.” If you receive only fellowship income in the course of a calendar year (and you’re not married to someone with taxable compensation/earned income), you become ineligible for certain tax benefits. The lost benefit that most commonly concerns graduate students is the ability to contribute to an Individual Retirement Arrangement (IRA).

Further reading:

An IRA is a tax-advantaged retirement savings vehicle. It’s a great idea to use an IRA (or other tax-advantaged retirement vehicle such as a 401(k) or 403(b)) for your retirement savings as it helps you maximize your long-term rate of return by protecting your investments from taxes. As a graduate student, you almost certainly don’t have access to the university 403(b), so the IRA is basically the only game in town for tax-advantaged retirement savings.

The catch is that you (or your spouse) must have taxable compensation during a calendar year for you to contribute to an IRA for the year. So if you go an entire calendar year with only fellowship income (you don’t have compensatory income from an assistantship or outside job and you’re not married to someone with taxable compensation), in that year you’re not eligible to make any IRA contributions.

It’s a catch-22: While you are likely more financially capable than ever of investing for the long term, you’re barred from doing so in a tax-advantaged retirement account.

I don’t think your inability to contribute to an IRA should stop you from working on your financial goals. It may be that you choose to prioritize another goal over retirement savings as a result of not being able to use an IRA, e.g., paying down student loans. But if saving for retirement is your top priority, you should pursue it; just use a taxable account instead of an IRA during any years of ineligibility.

Your tax burden can actually be quite low during grad school if you choose a long-term, low-turnover investing strategy. If you are single and your income in 2018 is below $38,600, your long-term capital gains and qualified dividends will be taxed at 0% at the federal level (you may still owe state and local tax). So it’s really not too bad to save in a taxable account as long as your income stays low. When you have access to an IRA or other tax-advantaged retirement account, you can probably shift your taxable assets into that account time to maximize the growth rate in the long term.

Further reading: Fellowship Recipients Can Save for Retirement Outside an IRA

What other questions do you have about financially managing your NSF GRF stipend?

Weird Tax Situations for Fellowship Recipients

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One of the most puzzling tax scenarios that is common in academia but almost unheard of outside of it is fellowship funding because it neither a wage nor self-employment income. Fellowships (which in my usage sometimes includes training grants) frequently pay the stipends and salaries of grad students and postdocs, but also apply to some other kinds of trainees that aren’t considered students or called postdocs. This post explains the weird tax situations for fellowship recipients and how to resolve them. I’ll clarify right up front that you do need to incorporate your fellowship income into the gross income you report on your tax return, and you almost certainly will end up paying tax on it (unless your total income is very low or you have lots of other deductions/credits).

weird tax fellowship

Further reading:

I have to define my terms up front here because “fellowship” is used variously inside and outside of academic research, and these weird tax situations don’t always apply. What I’m talking about is when your income from your academic/research role is not reported on a W-2 (and you’re not self-employed). Often, though not always, winning a fellowship generates this kind of income. The NSF GRFP is probably the most well-known example of this type of income at the graduate level for STEM fields. Basically, you’re being paid because you won an award, not because you are directly trading work or time for money. This kind of income can come from training grants and other kinds of grants as well as fellowships, and in those cases you might or might not be labeled a fellow. If your income is reported on a W-2, whether it’s called a fellowship or not, this post doesn’t apply to you!

Personally, over my time in/near academia, I received non-compensatory pay on five occasions:

  • I was postbaccalaureate fellow at the NIH for a year between undergrad and grad school, and my income was reported on a 1099-G.
  • I was on a training grant in my first year of grad school, and my income was reported on a 1099-MISC in Box 3.
  • I won an internal fellowship for my second year of grad school, and my income was reported on a 1099-MISC in Box 3.
  • I was paid from my advisor’s discretionary funds in my sixth year of grad school, and my income was reported on a 1099-MISC in Box 3.
  • I was a Christine Mirzayan Science and Technology Policy Fellow at the National Academy of Engineering, and my income was reported on a 1099-MISC in Box 3.

Free Tax Webinar for Grad Students and Postdocs

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Receiving Unusual Tax Forms

The way to definitively tell that you’re receiving non-compensatory income is that you don’t receive a W-2 at tax time for your income, which was likely paid similarly to a regular salary or perhaps in a lump sum per term. Instead, you might see your income reported on some other strange tax form:

  • 1098-T
  • 1099-MISC

There are other possible mechanism for this reporting; these are the two most commonly used within universities.

Neither of these forms was designed for reporting fellowship income; neither does it very well, but they do get the job done if you know what you’re looking for.

1098-T

A 1098-T, which is issued to some students depending on your university’s policies, is sort of a clearinghouse form for the sum of your fellowships/scholarships/grants received (in Box 5) and also the sum of the qualified tuition and related expenses that were billed (Box 2) or paid (Box 1) to your student account. Your fellowship income might be lumped in with your scholarships in Box 5, which makes them a little hard to parse, or Box 5 might only include your scholarships (see next section if so).

The good thing about the 1098-T if it includes your fellowship income is that it does put front and center two of the important numbers you’ll need to work with when you prepare your tax return, the sum of your non-compensatory (fellowship, scholarship, and grant) income (Box 5) and your Qualified Education Expenses (Box 1/2). You don’t really need to know what your fellowship income was independent of your additional scholarship/grant income See Weird Tax Situations for Fully Funded Grad Students for more details about working with the 1098-T.

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1099-MISC

The 1099-MISC is a super confusing form to receive for fellowship income.

First, any non-academic who hears/sees that you have income reported on a 1099-MISC is going to think you’re self-employed. Self-employment/contractor income is the most common usage for the 1099-MISC, but that income is reported in Box 7. Fellowship income will show up in Box 3, “Other income.” If you are a grad student, you are not self-employed; do not pay self-employment tax! (The situation is murkier for postdocs!)

Further reading: Grad Student Tax Lie #2: You Received a 1099-MISC; You Are Self-Employed

Second, the instructions for the 1099-MISC tell you to (“generally”) report your Box 3 “Other income” in the “Other income” line on your 1040 (line 21). You can do it that way and your tax calculation will turn out correctly in a lot of situations, but it’s more correct to report the income explicitly as fellowship/scholarship income. It’s less confusing for the IRS and will possibly enable you to take more educational tax breaks.

Further reading:

Receiving No Tax Forms

Going along with the theme of not receiving a W-2 at tax time, you might very well not receive any tax form at all! It’s very common for there to be zero communication between the organization that pays the fellowship and the fellowship recipient. Other times, the fellow might receive what I call a “courtesy letter,” which is just a short, informal letter stating the amount of fellowship money paid.

Further reading: What Is a Courtesy Letter?

Fellows who don’t receive tax forms or whose universities/institutions don’t communicate with them at all about their personal taxes may feel completely adrift. They have no idea where to even start with preparing their tax returns. Many pay no taxes at all (if you know someone like that, send them this article!) since it takes a certain level of awareness of your tax responsibility to even wonder if you need to pay income tax. Even those who suspect they need to report and pay tax on their fellowship income might be daunted by the task of figuring out from scratch exactly how to do that.

But it’s really a simple process to carry out if you know what to do! You should be able to find the amount of fellowship income you were paid for the whole year from your bank records. If you’re not a student, you just straight report that number in the “wages” line of your 1040/1040A/1040EZ with “SCH” written next to it. If you are a student, you have to work with your other scholarships and qualified education expenses a bit before reporting a number for your non-compensatory pay; see Weird Tax Situations for Fully Funded Grad Students for more details on that.

Further reading: Where to Report Your Grad Student Income on Your Tax Return (applies for non-student fellows as well)

Quarterly Estimated Tax

In my observation, most fellowship recipients have the responsibility of paying quarterly estimated tax, and many, many, many neglect to do so. If you need one level of awareness to even understand you’re supposed to pay tax on your fellowship income, you need an even higher level of awareness before you follow through on paying quarterly estimated tax. In fact, if the organization providing you the fellowship didn’t mention this, it’s not a water cooler topic around your department, and/or you’ve never been self-employed, you almost certainly wouldn’t know to do it.

The basic principle here is that the IRS expects to receive tax payments throughout the year, not just in April when your tax return is due. If you owe enough additional tax at the end of the year (and don’t qualify for an exception), the IRS is going to demand not only your tax payment but late fees and interest as well.

The main system for sending tax in to the IRS is tax withholding on a normal paycheck. If you don’t do that or your withholding isn’t sufficient, you’re supposed to file quarterly estimated tax. Basically, you send in a payment (no forms need to be filed) to the IRS four times per year to make sure you don’t have too much extra tax due when you file your yearly tax return. You should work through the estimated tax worksheet in Form 1040-ES to figure out if you are required to pay quarterly estimated tax and in what amount; you can also find the instructions for filing it in that form.

Taxable Compensation and Earned Income Tax Breaks

Some of the tax breaks the IRS offers are contingent on the type of income you have, and fellowship income (not reported on a W-2) does not necessarily qualify.

Individual Retirement Arrangement

To contribute to an Individual Retirement Arrangement (IRA), you (or your spouse) must have “taxable compensation.” Unfortunately, while taxable, fellowship income does not qualify as “compensation” (Publication 970 p. 5). So if your only income for a whole calendar year is fellowship/non-compensatory income and you’re not married to someone with taxable compensation, you aren’t eligible to contribute to an IRA in that year.

Further reading:

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) or Earned Income Credit (EIC) is a credit extended to low-income individuals and families. If your household income is quite low and/or you have one or more children, you might be able to receive the credit. As the name implies, you need “earned income” to qualify for the EITC. Unfortunately, fellowship/scholarship income is not considered “earned income” (Publication 596 p. 18). Puzzlingly, having zero earned income disqualifies you from the credit, but having too much non-earned income also disqualifies you from the credit. The definition of earned income also plays into the calculations for the Child Tax Credit and Additional Child Tax Credit.

Further reading: Grad Student Tax Lie #8: You Can Claim the Earned Income Tax Credit

What other weird tax situations have you encountered due to your fellowship income?