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This Postbac Fellow Saves 30% of Her Income through Simple Living and a SciComm Side Hustle

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In this episode, Emily interviews Maya Gosztyla, a postbac fellow at the National Institutes of Health in Rockville, MD who saves approximately 30% of her income from her stipend and freelance science writing income. Her goals for funding her PhD program applications and upcoming move to grad school and wedding motivate her to keep her expenses low and sustain her side hustle. Maya gives great financial advice for PhDs in transition into and out of grad school.

Links mentioned in episode

postbac savings rate

0:00 Introduction

1:15 Please Introduce Yourself

Maya Gosztyla graduated in May 2018 from Ohio State. She majored in Neuroscience and Molecular Genetics. She started as a postbac at National Institutes of Health (NIH) right after graduation. She is mainly focused on drug discovery research. Her interests are in neurodegenerative diseases in particular. She is applying to PhD programs, with intent to begin her PhD program in Fall 2019. Maya is relieved that she does not have to balance undergraduate coursework with time spent on graduate applications. She also has more time for the interview weekends, which Emily says can be a fun experience.

2:33 What is your income? Where do you work and live?

Maya’s postbac annual salary is $30,000. She works at NIH location in Rockville, Maryland. The cost of living in this location is fairly high, because she is in the Washington DC metro area.

3:26 What was your financial situation coming into your postbac position?

Maya didn’t have any student loans. She says she treated filling out scholarship applications like a full time job, so she was able to fund her entire junior and senior years of undergraduate education. She didn’t spend all of her scholarship stipend during senior year. She has emergency savings fund of about $7,000 since she graduated from college.

4:25 Do you apply the same mindset from your undergraduate scholarships to your graduate school fellowship applications?

Maya says she has been applying to many graduate school fellowships. She applied to the National Science Foundation Graduate Research Fellowship Program (NSF GRFP), the National Defense Science and Engineering Graduate Fellowship (NDSEG), and one example of a school specific fellowship is the Knight-Hennessy Scholars at Stanford University. In addition to her graduate school applications, she has been sending in many applications to go after award money in full force. Emily assures that this strategy is a great idea, because you are certain that you will get paid for your graduate work.

5:58 Where did you move from? How did you manage your finances during your move?

Maya’s rent during college was $350 per month. In Rockville Maryland, her rent is $850 per month. Maya says what helped her most during her move was making a really detailed budget. She used several cost of living calculator websites. Additionally, she doesn’t have tax withdrawn from her postbac stipend, so she had to estimate quarterly tax.

She was in shock when she moved from the inexpensive Ohio city to the much more expensive DC area. She thought she needed to spend as little as humanly possible. For instance, she first moved into a bedroom in a three bedroom apartment. Her portion of the rent was $700 per month, which is the cheapest she could find in the area. She had an hour long commute, and she had to leave the apartment because of a cockroach infestation. Maya advises that people not to choose the cheapest apartment, but to take into account other factors. She says it can be worth more rent money to be closer to work for a shorter commute, and to live in a quality apartment.

Maya used cost of living calculators to get a sense of the maximum expenses she would have in the DC area. She says she spends less than suggested by the calculators. She talked to people who are in the NIH postbac program, because these are people in her age group and income level. At this early career stage, people are willing to share information about income and rent.

10:04 What is your savings rate? How are you saving this amount each month?

Maya is averaging around 30% of her gross income, pre-tax, going into savings. She emphasizes the importance of setting targets and timelines for what she is saving for. One of her specific goals was to pay for PhD program applications, which was well over $1000. She wanted to start an Individual Retirement Account (IRA), since she’s not sure she can have an IRA while she’s in graduate school. Another financial goal is to get married next summer! With her partner, she wants to take a couple of weeks vacation in Europe. She wants to do all of this without tapping into her emergency fund, because she wants to use this fund for her move to graduate school.

Maya has several frugal strategies. She doesn’t have a car, which is unnecessary in DC and major cities. She takes a bus to work, which she says is reliable. NIH will pay for public transit, so she gets reimbursed for her bus expenses. Maya says eating out is really expensive. She cooks almost all of her meals, and she meal preps. She goes out to eat with friends, as a social experience, it’s important to eat food to bond with people. This happens two to three times a month, and they don’t go out for drinks that much either. She views her eating out expenses as paying for access to space and people, and eating food isn’t the purpose. She set a rule for herself that she won’t eat out alone.

She goes to work, gets groceries, finds free stuff to do, and she doesn’t spend on entertainment. Also, she has a side source of income. Maya does science writing as a freelancer. It’s not easy work, but it’s not incredibly technical. She can pick and choose when and what kind of assignments she wants to accept.

15:27 How did you get connected to opportunities for freelance science writing?

Maya started a blog about Alzheimer’s Disease while she was in college. She wasn’t making money from the blog, but she started getting cold emails from people who liked her writing who would commission her for articles. She uses Upward, the freelancing website to find clients. Upward has a fee of 30% from every writing, so she charges more to make sure she doesn’t undercharge for her work.

Emily recommends the academic blogging network on Facebook (now called Gradblogger Connect) as a great resource for people interested in blogging and podcasts.

She doesn’t see science writing as her career. The variable income makes her feel anxious. She’d like to keep writing on the side, because she believes it is important for scientists to write about research for the public. Emily says that a side hustle during the PhD training is useful to figure out if this is what you want to do for your career.

20:37 Do you consider yourself having a financially quiet life?

Maya says that she applies a KonMari method to her purchases. She asks herself questions like, “will getting take out actually make me happier?” She does spend money on flights, because her fiancé lives in Ohio and she travels to see him. Maya observes that people spend money because they feel like they have to. She says it’s not a sacrifice for her to not go out every weekend, because she doesn’t really like alcohol. Emily says that it’s very interesting to apply Marie Kondo’s method to finances, and ask “does this spark joy?” Maya has gone through the introspection to consider what is bringing her high value. When you have low income, you can’t just default to the kind of consumerism you see around you.

23:30 Have you started thinking about how you’ll financially manage the transition to graduate school?

Maya is applying to high cost of living areas, so she feels more prepared for that move. Since she’s lived in the DC area, she will have a better idea of expense in places like Boston and San Francisco. She’s trying not to touch her emergency fund, because she needs it for her moving expenses. She is also trying to make sure that fiancé and her are comfortable in their current low income lifestyle, she wants to avoid the lifestyle creep. Graduate school will be a transition, but Maya will also experience the life transition of combining her lives with her partner.

25:02 Do you have any advice for someone looking at a transition out of college or into graduate school?

Maya says the first thing you have to do is look at what you have and where do you want to be in a month, or year. There is no way to set a savings rate if you don’t have something you’re aiming for. She gives the example that she wanted to save $4,000 for their honeymoon, then she could create a budget with that goal in mind.

She also says don’t forget about taxes. She had lab mates who didn’t know this. They weren’t setting aside money for tax season, and ended up owing. She says you can set up a separate savings account to set aside taxes. Emily says that this blindsides a lot of people. She has created resources on her website to help people estimate their quarterly tax.

Maya says you need to buy things that actually make you happy. She offers the caveat that if something is actually important, like you don’t need to get the cheapest apartment, get one you want. You can keep stock of what you actually care about. Maya wonders if people really know the taste of expensive wine, for example, or if it’s more about expectations. Emily says we may need to shuck the expectations. You have to figure out if something is right for you, if it “sparks joy” for you, and it’s not an expectation that others put on you. Maya says that others don’t pay attention.

Finally, Maya says to keep a really detailed spreadsheet. She used to use Mint, but now she uses a manual spreadsheet, and inputs once a week. She customizes it for her needs.

30:47 Conclusion

Weird Tax Situations for Fellowship and Training Grant 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 or training grant funding because it is neither a wage nor self-employment income. Fellowships and training grants, which I call “awarded income,” frequently pay the stipends and salaries of graduate students, postdocs, and postbacs. This post explains the weird tax situations for fellowship and training grant recipients and how to address them. I’ll clarify right up front that you do need to incorporate your awarded 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

This article was last updated on 1/17/2025. It is intended for US citizens, permanent residents, and residents for tax purposes. It is not tax, legal, or financial advice.

Further reading/viewing:

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 Form W-2 (and you’re not self-employed).

Often, though not always, winning an external or internal fellowship generates this kind of income. The National Science Foundation Graduate Research Fellowship (GRFP) and the Department of Defense National Defense Science and Engineering Graduate Fellowship (NDSEG) are among the most well-known examples 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 also come from training grants, such as the National Institutes of Health Ruth L. Kirschstein Institutional National Research Service Award (T32), and in those cases you might or might not be labeled a fellow by your institution.

If your income is reported on a Form 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 awarded income 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.

Receiving Unusual Tax Forms

The way to definitively tell that you’re receiving awarded income is that you don’t receive a Form 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:

  • Form 1098-T
  • Form 1099-MISC
  • Form 1099-NEC
  • Form 1099-G

There are other possible mechanism for this reporting; these are the four most commonly used by universities and funding agencies.

None of these forms was designed for reporting awarded income and none do it very well, but they do get the job done if you know what you’re looking for.

Form 1098-T

Form 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 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 Form 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 awarded (fellowship, scholarship, and grant) income (Box 5) and a subset of your Qualified Education Expenses (Box 1). 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 Form 1098-T.

Form 1099-MISC

Form 1099-MISC is a slightly confusing form to receive for fellowship income.

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 and contractor income used to be reported in Box 7, which no longer exists following the creation of Form 1099-NEC (see next). Fellowship income usually shows up in Box 3, “Other income.” If you are a grad student or postdoc, you are not self-employed; do not pay self-employment tax!

The instructions for the 1099-MISC tell you to (“generally”) report your Box 3 “Other income” in the “Other income” line on your Form 1040 Schedule 1. There is a precise line on which you should do so: Form 1040 Schedule 1 Line 8r, which is labeled “Scholarship and fellowship grants not reported on Form W-2.”

Form 1099-NEC

The IRS resurrected Form 1099-NEC, which stands for “non-employee compensation,” starting in tax year 2020. All self-employment and contractor income is now supposed to be reported in Box 1.

Unfortunately, a minority of funding agencies are also reporting awarded income on Form 1099-NEC Box 1. Similar to Form 1099-MISC, if you are certain that this income is fellowship or training grant income and not self-employment income, you should report it as fellowship income on your tax return. If you erroneously report it as self-employment income, you will pay self-employment tax (15.3%) and exclude yourself from taking a higher education tax break.

Form 1099-G

Form 1099-G is typically used when the funding body is part of the federal government. The awarded income shows up in Box 6, “Taxable grants.”

Further reading:

Receiving No Tax Forms

Going along with the theme of not receiving a Form 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 institutions and funding agencies 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.

Further listening: Do I Owe Income Tax on My Fellowship?

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 or training grant 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 Form 1040 Schedule 1 Line 8r. 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 awarded income; see Weird Tax Situations for Fully Funded Grad Students for more details.

Further reading: Where to Report Your PhD Trainee Income on Your Tax Return

Quarterly Estimated Tax

In my observation, the great majority of awarded income 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 or close to someone who is 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 pay 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 on p. 8 of 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.

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

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 From 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.”

Through 2019, the definition of “taxable compensation” did not include fellowship and training grant income not reported on Form W-2. However, starting in 2020, the definition of “taxable compensation” changed for graduate students and postdocs to include fellowship and training grant income even if not reported on From W-2.

Therefore, all types of graduate student and postdoc taxable income, whether reported on a Form W-2 or not, is eligible to be contributed to an IRA starting in 2020.

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.

Dependent Status

When you are trying to determine if you should file a tax return as an independent adult vs. a dependent of your parents, it is more difficult to qualify as independent with fellowship income rather than an equal amount of W-2 income. (This only applies to students under age 24.) While education expenses count as part of the amount of money that goes toward your “support,” scholarships and fellowships that you won do not count as you providing your own support.

Kiddie Tax

Fellowship income counts as unearned income for the purposes of being subject to the Kiddie Tax. If you are under the age of 24 on December 31 and a student, your “unearned” income exceeding $2,500 may be subject to a higher tax rate than the ordinary rate.

Further reading: Fellowship Income Can Trigger the Kiddie Tax

Weird Tax Situations for Fully Funded Grad Students

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“Actually, I get paid to go to school.” How many times have you said that to distant relatives and new acquaintances? If you look at it that way, being a funded grad student is a pretty sweet gig. But there are definitely downsides, like the low pay, sub-par benefits, and the weird tax situations that come with getting paid to be a grad student in the US. Receiving a 1098-T that has seemingly no basis in reality and having to incorporate it into your tax return—or worse, not receiving one—can become a real time- and energy-suck. The whole tax return support system seems to have been set up to help people who are in the red with their universities, not people who are in the black. Fortunately, there are solutions to these weird tax situations for fully funded grad students, and I’ve brought them to light for you in this point.

weird tax fully funded grad student

The points covered in this post are strictly to do with being a funded graduate student (“candidate for a degree”) at a US university. It is primarily written for graduate students who are US citizens, permanent residents, and residents for tax purposes.

This article was most recently updated on 1/17/2025. It is not tax, financial, or legal advice.

Further reading:

You Might or Might Not Receive a 1098-T

Form 1098-T looks like a super official tax form, rather like Form W-2. However, it’s not as weighty of a form as other tax forms you might receive for the purpose of reporting income. Form 1098-T’s primary purpose is to let the IRS know that a student (or a student’s parents) might try to take a higher education tax credit so that it can check the amount of the tax break claimed; it’s not designed and is not well-suited for reporting income, which is primarily what funded graduate students need to do. In fact, it’s optional for universities to even generate a Form 1098-T for a student for whom the Form 1098-T’s Box 5 (“Scholarships or grants”) would be greater than Box 1 (“Payments received for qualified tuition and related expenses”), which is often the case for funded graduate students. So as a fully funded graduate student, you might receive a 1098-T or you might not; the choice belongs to your university.

Further reading: What Is a 1098-T?

Your 1098-T Might Mislead You

The only thing worse than not receiving a 1098-T is receiving one that is misleading.

Further reading: Form 1098-T: Still Causing Trouble for Funded Graduate Students

When a 1098-T is issued, it is supposed to contain all of the scholarships and grants that were processed through the graduate student’s account (Box 5) as well as the payments received (Box 1) for qualified tuition and related expenses. In addition, your fellowship stipend might appear in Box 5 (or it might not). You would think this would be straightforward bookkeeping, yet I’ve spoken with numerous graduate students who, even after careful study of the transactions in their student accounts, could not understand how the sums were calculated.

Even if your Form 1098-T is a straightforward representation of the transactions in your student account, the net fellowship/scholarship income you should report on your tax return is not necessarily Box 5 minus Box 1. More on that next!

You Have to Calculate Your Taxable Awarded Income

It’s really straightforward to report your Form W-2 income, which I call “employee income,” on your tax return. The number is right there in Box 1, and it goes into Form 1040 Line 1a.

However, you have to calculate the taxable portion of your fellowship/scholarship/grant income, which I call “awarded income,” before reporting it on your tax return.

This is because, as a student (“candidate for a degree”), you’re eligible for a higher education tax break called tax-free scholarships and fellowships, which is detailed in Publication 970 Chapter 1. This means that the awarded income that you receive is taxable only to the extent that it exceeds your “qualified education expenses.”

To calculate your taxable awarded income, you need to add up all of your awarded income and then subtract all of your qualified education expenses. (This is not the same calculation as subtracting your Form 1098-T Box 1 from your Form 1098-T Box 5—more on that next!) Sometimes, this will net out to zero, like if the scholarship for your tuition exactly pays the amount of your tuition. Sometimes, there will be excess income or excess qualified education expenses.

In fact, funded graduate students often overpay their true tax liability because they miss accounting for some of their qualified education expenses! This could happen because they forgot about an education expense they paid for out of pocket or because they misunderstood that a charge in their student account actually was a qualified education expenses under this benefit.

Further reading: Where to Report Your PhD Trainee Income on Your Tax Return

You Have to Figure Out Your Own Qualified Education Expenses

To expand on that point, there is a lot of well-deserved confusion over what a “qualified education expense” actually is. This is because the definition of a Qualified Education Expense is slightly different depending on the tax break you’re trying to take. Yeah, that’s another weird tax situation for fully funded grad students.

IRS Publication 970 p. 4:

“Even though the same term, such as qualified education expenses, is used to label a basic component of many of the education benefits, the same expenses aren’t necessarily allowed for each benefit.”

Tuition is considered a qualified education expense for tax-free scholarships and fellowships and the two higher education tax credits, but some additional expenses, such as required fees and course-related expenses, e.g., books and supplies, are included in the definition for tax-free scholarships and fellowships. Even a personal computer could be considered a qualified education expense for tax-free scholarships and fellowships under very well-defined circumstances. These types of expenses are unlikely to appear on your 1098-T in Box 1 because they’re usually paid out of pocket. You should refer to Publication 970 for the full definitions of qualified education expenses under the three different education benefits.

Furthermore, the number that appears in Box 1 of your Form 1098-T is not the sum of your qualified education expenses that are processed by your student account. Box 1 of Form 1098-T reflects “qualified tuition and related expenses,” which has its own definition that excludes certain expenses that are qualified education expenses under tax-free scholarships and fellowships.

Further reading: What Are Qualified Education Expenses?

One controversial point is whether your student health insurance premium is a required fee/qualified education expense for the purpose of making the scholarship that pays it tax-free. Insurance and student health fees, along with some other expenses, are explicitly disallowed as qualified education expenses for the Lifetime Learning Credit, but not for making scholarships tax-free.

My tax return preparation workshop contains a complete discussion of qualified education expenses, including common gray-area examples that graduate students encounter, and how to calculate the taxable portion of your awarded income.

You Might or Might Not Be a Dependent of Your Parents

Because graduate students are students, they might be considered dependents of their parents (or another relative) for tax purposes if they were under age 24 on 12/31. Many parents (and their tax preparers) try to claim their of-age children as dependents without referencing the relevant definitions. If your parents assume you are a dependent but you believe you are not, together you can go through the definition carefully to make the final determination.

The conditions for being considered a dependent of your parent are:

  • You are age 23 or younger at the end of the calendar year.
  • You were enrolled as a student in at least 5 calendar months (doesn’t have to be consecutive).
  • You lived with your parents for at least half the year (being away for educational reasons can count as living with them).
  • You are not filing a joint return (with a caveat).
  • You must meet the “Support Test”: You did not provide more than half of your own support in the calendar year (see Publication 17 Worksheet 3-1).

For any years that the first three points above apply to you, you should fill out the Support Test to determine if you provided enough of your own support to qualify as independent. Keep in mind that education expenses count as “support” that you needed, but scholarships and fellowships that paid that support don’t count as being provided by you, the student.

You’re (Mostly) Not Paying FICA Tax

FICA (Social Security and Medicare) taxes seem like an unavoidable burden for employees and self-employed people. But even if you’re an employee of your university (i.e., you receive a W-2 at tax time), you’re most likely not paying FICA tax because you have a student exemption. This exemption depends on both the primary function of the organization that employs you (i.e., educational) and your primary relationship with the organization (i.e., as a student rather than an employee).

The student exemption is almost universal for graduate students, but I have come across two exceptions that depend heavily on the exact wording of the exemption:

1) Graduate students at research institutions that are not primarily universities might not receive the exemption.

2) Graduate students, even at universities, whose primary relationship with their employer is as an employee rather than a student may pay FICA tax. For example, this might occur during the summer vs. during the academic year, and could happen without the student even perceiving a difference in roles. (This is not common, but I have seen it a few times.)

Graduate students receiving fellowships also do not pay FICA tax, but that is because they are not receiving wages rather than due to their student status.

You Cannot Take the Saver’s Credit

The Saver’s Credit is a very valuable credit that low-income earners can take if they contribute to a retirement account, such as an IRA. However, full-time students are not eligible for the credit.

Yes, there are a lot of weird tax situations for fully funded grad students. You have to do a bit of legwork instead of just blindly entering numbers from your 1098-T into tax software or ignoring your excess scholarship income. But if you break the issues down one by one, it’s actually straightforward to determine how to resolve them.

Do I Owe Income Tax on My Fellowship?

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Postbac, graduate student, and postdoc fellows frequently ask whether their fellowships are considered taxable income. PhD-type fellowships that are not reported on a W-2 are non-compensatory income. They might be reported on a 1098-T in Box 5, on a 1099-MISC in Box 3, or on a courtesy letter or not reported at all, which accounts for the widespread confusion. Publication 970 answers the question of when a fellowship can be considered tax-free. Fellowships are considered part of the recipient’s taxable income unless they go toward paying qualified education expenses (students only).

Links Mentioned in the Episode

income tax fellowship

Transcript

Welcome to the Personal Finance for PhDs Podcast – a higher education in personal finance. I’m your host, Emily Roberts.

I’m doing something a little bit different in this special bonus episode for Season 2.

I’m using it to answer a frequently asked question that I receive about taxes. The question is: Do I owe income tax on my fellowship?

In this episode, I’m speaking to citizens and residents in the United States. And I’m also talking about PhD-type fellowships whether at the postbac level, the graduate student level, or the postdoc level.

What’s going on with these fellowships that makes the recipient question whether or not they are taxable is that they are not reported on a W-2. They might not be reported at all, or they may be reported on a 1098-T in Box 5, on a 1099-MISC in Box 3, or on a courtesy letter, which is not an official tax form but rather just a letter that states what the amount of the fellowship was in that calendar year.

Fellowship income is considered part of your taxable income. Now, you may not actually end up paying tax on your fellowship income depending on the rest of your return, like the deductions and credits you’re going to be able to take, but it is considered part of that taxable income.

Now, I know you’re not inclined to just believe me right off the bat. I mean, there’s a strong incentive for you to believe that your fellowship income is not taxable, so I’m going to give you a bit of evidence here.

IRS Publication 970 is the definitive publication on the taxability of fellowship and scholarship income. I’ll read you a few excerpts from Chapter 1 of Publication 970.

First, some definitions:

A scholarship is generally 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.

A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.

So you can see that fellowship grants are much more broad; they can be issued to non-students, whereas scholarships only go to students.

Chapter 1 of Publication 970 approaches fellowships and scholarships from the perspective of trying to make them tax-free.

So let’s see how that can happen:

A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.

So right off the bat we know that anybody who is receiving a fellowship who is not a student cannot make their fellowship tax-free, i.e., it is part of their taxable income.

Additionally:

A scholarship or fellowship grant is tax free only to the extent: It doesn’t exceed your qualified education expenses…

So now we’re just dealing with the graduate student population that has the potential to make a scholarship or fellowship grant tax-free.

The way that we use the terms ‘scholarship’ and ‘fellowship’ in academia, a ‘fellowship’ generally refers to the money that you take home for your living expenses, whereas ‘scholarship’ is the money that goes towards paying your tuition and fees, the qualified education expenses.

Very roughly speaking, your qualified education expenses can make your scholarships tax-free if you’re a fully funded graduate student, but there’s no more qualified education expenses to start making your fellowship income tax-free. Therefore, again, roughly, your fellowship income is included in your taxable income.

So to summarize, fellowship and scholarship income that goes towards paying our qualified education expenses like tuition and fees can be made tax-free, but fellowship and scholarship income that goes towards paying other kinds of expenses like your living expenses can’t be made tax-free.

Now, I’m glossing over some very important details on how you actually calculate your taxable income, so if you want more information about that, please see the tax center on my website, pfforphds.com/tax.

But, there you go, roughly speaking, fellowship income does need to be included in your taxable income, whether you are a postbac, a graduate student, or a postdoc.

Thanks for joining me in this short bonus episode!

Please share this episode on social media and with your peers because this is a message that they need to hear. It’s not a message that they want to hear, but it’s a message that they need to hear to stay on the right side of the IRS.

Show notes for this episode can be found at pfforphds.com/s2be1.

Thanks for joining me today, and I’ll see you in the next episode!

Further reading/viewing:

Using Data to Improve the Postdoc Experience (Including Salary and Benefits)

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In this episode, Emily interview Dr. Gary McDowell, the executive director of Future of Research. Future of Research is an advocacy organization that uses data to empower early-career researchers. Gary outlines the ongoing work at Future of Research before diving into the details of their recently published study on postdoc salaries. Emily and Gary discuss the complexities around categorizing and counting postdocs as well as the interesting results from the data Future of Research acquired by Freedom of Information Act requests. Current postdocs can contribute to this ongoing project by submitting their salary and benefits data to the Postdoc Salaries database.

 

Links mentioned in episode

postdoc salaries

0:00 Introduction

1:07 Please Introduce Yourself

Dr. Gary McDowell is from Northern Ireland and Scotland. All of his undergraduate and postgraduate education was completed in the United Kingdom. He moved to the United States to become postdoc. First, he worked at Boston Children’s Hospital, then he worked at Tufts University in the Boston area. As a postdoc in the United States, Gary became interested in the scientific system itself, such as setting scientists up for success and producing scientists, not just science. He experienced the frustration that many people feel with the scientific system and its hyper competition.

Now Gary is the executive director of the nonprofit Future of Research. Their mission is to empower early career researchers with evidence to help them change the research system and the enterprise they experience.

3:00 Can you give us an overview of Future of Research and the organization’s work?

Gary is the only staff member of Future of Research. The board of is comprised of twenty early career researchers. The organization originated with a conference to bring early career researchers together to discuss ways to reduce hyper-competition in biomedicine. They held conferences around the country and realized the need for a group that has these conversations. The nonprofit provides data and evidence to early career researchers to help them make better choices and to educate the rest of scientific community of the realities our generation is currently experiencing. Their work is done by the board and volunteers.

Future of Research has worked on two major projects which came out of local meetings. The project “Who’s on board?” aims to get more early career researchers into leadership positions, starting with scientific societies. Through this project, Future of Research seeks to generate a network of future leaders for scientific organizations to tap into. They are working on a project to address mentoring, because it is one of the biggest concerns of early career researchers. Junior faculty often ask, “How do I find out more about how to mentor and manage people?” Junior faculty are expected to be mentors, but don’t know how to. Future of Research will host a summit in Chicago to bring together people who work in this space and who research mentoring. They will discuss what grassroots action they can take to make sure institutions are putting mentoring at the center of their interests.

Future of Research has been responsive to needs that arise. They are beginning a project to examine peer review and address this phenomenon of grad students and postdocs essentially ghostwriting a peer review report that is then submitted to a journal under someone else’s name. This is a problem of appropriate scholarly recognition, but at the same time the academic community hears there are not enough reviewers. Journals are crying out for more reviewers, but there is lack of transparency about who’s doing reviews, creating barriers to journals having names of potential reviewers. Surveys suggest that principle investigators are not trained in peer review, their practices come from assumptions, and there is generally lack of clarity of expectations in the peer review process.

Future of Research has just finished a postdoc salary project. It started when they formed the nonprofit. At the time, there was a change to federal labor law being proposed. The change was going to affect postdocs by raising their salaries, or by causing institutions to have postdocs clocking in and out and tracking time. Future of Research watched the push to raise postdoc salaries, and started following what institutions would do in response. They had the question about what are the actual salaries that people in postdoc positions have?

8:34 What is your recent paper and where can people find it?

The title of their paper is “Assessing the landscape of U.S. postdoctoral salaries.” It’s open access in the Studies in Graduate and Postdoctoral Education, Emerald Insight Publishing Groups.

9:07 What is a postdoc?

According to Gary, the PhD is when the trainee is learning how to do science, how to carry out research, how to do experiments, and analyze,. The PhD is for learning the nuts and bolts of being a scientist. The postdoc is intermediate, after the PhD and before the professor position. Gary’s opinion is that a postdoc should be considered as a period when you should be thinking about your own research goals and how to take those foward. Postdocs should be learning under the mentorship or apprenticeship of an investigator. Postdocs should be learning how to manage a group, mentor people, manage budgets, write grants, and lead a team.

However, Gary says that the postdoc is more likely a period of further research. Many people change field and get experience in another research group. Postdocs are often trying to get a certain number of published papers. Postdocs are trying to demonstrate they can succeed in a different lab and accrue credentials to get a faculty position to start as a professor.

Emily adds that there are eleven different common titles under which postdocs can be hired. There is a discrepancy between how employers see postdocs and how postdocs see themselves. What level of awareness do universities have around their own postdocs?

11:55 How was the idea for a project to assess postdoc salaries formed? What question were you asking?

When the team at Future of Research was looking at policies that were being updated in response to labor law, they realized that these policies at an institution don’t tell us necessarily what people are getting paid. Though the institution has a policy about postdoc salaries, actually paying postdocs that amount requires adherence to policy and someone following up to enforce policy. The team saw a pre-print paper by Rescuing Biomedical Research, another nonprofit, which looked at National Science Foundation data on number of postdocs and concluded that the number of postdocs in decline. They questioned whether there is truly a decline, or instead a bubble of people staying in postdoc positions for longer. These questions led them to start the project to collect data on postdoc salaries.

The team at Future of Research found that institutions are doing a terrible job of reporting year to year how many postdocs they had. While institutions were receptive to policy changes, if the institutions don’t know who the postdocs are to begin with, will people fall through the cracks? Will the policies actually be reflected in reality? The institution could recommend salary, but never follow up.

Institutions are also in a constant argument over whether postdocs are employees or trainees. Unfortunately, it seems postdocs are employees when it suits, such as when the institution needs to keep postdocs out of things they need to do for students, but postdocs are trainees in terms of lower salaries and receiving no benefits.

14:18 What position counts as an employee or not an employee?

Gary explains that whether a position is designated as an “employee” is complicated by where the money comes from. Postdocs may be “staff” on a grant, or postdocs may be on fellowships of various kinds. When postdocs are on fellowships or paid directly, they are usually referred to as trainees, typically lose benefits, and the institution says they are no longer an employee. The U.S. Department of Labor created a specification about who is an employee, specifying that it’s not who pays you, it’s the nature of the work. The Department of Labor made this specification because some institutions tried to designate postdocs as fellows to get out of the new labor law. The Department of Labor explicitly sent this message to the National Institutes of Health, stipulating that the NIH had to raise fellowship stipend under the new law.

17:08 What did you do for the postdoc salaries project?

The team from Future of Research wanted to analyze postdoc salaries, but they learned that this information was not easy to find. They carried out Freedom of Information requests at public institutions. They contacted the Freedom of Information or Public Records offices at public institutions, which were legally required to give out data like this. They asked for the position title and salary of everyone who was a postdoc, on date of December 1, 2016 when the new labor law was due to come into effect and changes were likely to happen. This method forces the institution to provide information, and this method served as an internal metric of whether universities know what postdocs are. Certain institutions didn’t know what a postdoc was, and asked Future of Research to explain what a postdoc is. Future of Research cross checked the information they received from Freedom of Information requests with the National Science Foundation data on postdoc numbers.

20:05 What was your analysis of the data from public institutions?

Future of Research had a data scientist on the team, who analyzed the distribution of salaries. They brought out patterns by geographic region, by gender, and by title. They examined what variables were affecting the salaries. Their aim was to assess the landscape and figure out what salary distribution looked like. This could set the bar to work from for efforts going forward.

21:07 What were the broad conclusions of the postdoc salaries project? Was there anything surprising to you?

Gary says they got broad distributions of postdoc salaries. Nature published a write-up that emphasized that postdoc salaries vary wildly by institution. Most people received between $40,000 and $49,999 annual pay. They found that 22% of all their data was within a $25 range around the new National Institute of Health minimum stipend, which was very close to the proposed salary threshold is under the federal labor law. Gary shares that when Future of Research considers the levers they need to pull to raise postdoc salaries, it is a very useful finding that the median salary of all postdocs across the US, regardless of field, was pegged to minimum NIH National Research Service Award stipend amount. The most effective policy lever for raising postdoc salaries in the U.S. is to get NIH to raise the NRSA award stipends.

Emily emphasizes that so many universities go off the NIH minimum salaries, even though it’s just a recommendation, and it’s just a minimum. She points out that this minimum doesn’t take into account different cost of living. Is this the minimum for Bethesda, Maryland, where the NIH is located? Institutions go off this as if it is absolute truth. Gary brings up that in December 2018, NIH raised minimum salary. Now the minimum is $50,000, this amount has been recommended for quite some time. Gary and Jessica Polka, president of Future of Research, are on the National Academies study for the Next Generation Researchers Initiative. They will be releasing recommendations informed by this data.

Gary was surprised by how many salaries were in the $50,000 range. They broke down the distribution by field for a large subset and found no real field dependence for the salaries. People would expect the humanities to be lower, but the humanities were not lower. Gary was surprised by how often biomedical engineering salaries were in the lower end of the distribution. Gary wonders who negotiates, and if there’s a disparity in who’s negotiating. He mentions that talking about money in academia is stigmatized.

Emily created the website PhD stipends with her husband. Now it has over 4000 entries in it. It is a great place to go for prospective graduate students. She has thought there should be the same resource for postdocs. They have started postdocsalaries.com for people to self-report their salaries. Future of Research obtained information from public institutions, but they are completely missing private institutions. Self reporting also provides a check on whether what the institution reports matches what postdocs report. Postdocsalaries.com is a useful self reporting tool, that helps other people compare salaries and gives them the opportunity to comment on issues.

Gary discusses that when he gives a talk at institution, he loves to bring up money. He wants to break the stigma that ‘we’re not supposed to talk about this’ and tell people that this should be one of the questions that you ask your prospective PI. Gary says how that question is answered will tell you a lot about the PI as a person. You should look for someone who responds “I would love to pay you more, we can look into fellowships or I can find opportunities to pay you extra,” and steer clear of potential advisors who say “This isn’t about the money.” This is part of gathering information for your decision.

37:08 What are some action steps that postdocs can take today to improve their salaries, benefits, or working conditions?

Gary says always having data at hand is useful for individuals and groups to advocate. With data, you can approach an institution with the salaries that people are getting in your field, and point out that this is what the policy says so this is the expectation. This is action you can take on the personal level.

When Future of Research compared institutions publicly, there were administrators who could now use the data to say that the institution is being compared to everyone else, if they want to be competitive for postdocs they need to raise postdoc salaries. For groups looking to push for change in an institution, there are a number of lines of evidence. Gary says that comparing with peer institutions is useful. The most recent recommendations are that postdoc salaries should be at least $50,000 then adjusted for cost of living, then for your years of experience.

Listeners should go to postdocsalaries.com to get involved and learn more.

40:56 Conclusion

Negotiating PhD Funding Offers: This Grad Student Did It Successfully

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In this episode, Emily interviews John Vsetecka, a second-year PhD student in History at Michigan State University. When John was a prospective PhD student, he attempted to negotiate the stipend and benefits of the three admissions offers he was seriously considering. John shares exactly how he initiated the negotiation process and the outcomes at each of the universities. His negotiation method is well-researched and well-considered and is applicable to many if not most other prospective graduate students. John and Emily also discuss how prospective PhD students should combat imposter syndrome during the admissions process.

Links mentioned in episode

negotiating PhD offer

0:00 Introduction

1:05 Please Introduce Yourself

John Vsetecka is a second-year PhD student in the Department of History at Michigan State University. He studies modern Ukrainian history, with a focus on the 1932-1933 famine. Before beginning his PhD program, he worked as a GEAR UP advisor. This is a federal grant agency that works with low income students, called Gaining Early Awareness and Readiness for Undergraduate Programs. He worked in Colorado to help middle school and high school, low income students prepare for college. Before this job, he got a Master of Arts in History in 2014 at the University of Northern Colorado.

2:55 What PhD offers and interview requests did you receive from universities?

When John applied to PhD programs, he applied to eight schools and faced some rejections. He considered four offers, then narrowed his list to three. The first offer he eliminated would have required that he start with MA and work into PhD. Since he already had an MA, he felt he was ready to move on. He seriously considered three offers. He accepted the offer from Michigan State University, where he is now. He visited “University 2” in person for an interview. He had a virtual interview with “University 3.”

4:21 What did you think about the offers from these three universities?

John wasn’t sure what a fair offer was for a PhD position in History. Generally, PhD students are shy about sharing their financial experiences. So he did research and his mentor from the University of Northern Colorado guided him in this process. He talked to other PhD students, who would say they had enough to live on or that they were struggling. He used the websites GradCafe and PhD Stipends. He got a sense of what people were being paid, including their health insurance and fees. From all of this information, he decided two offers were fair and worth considering.

Emily shares an important piece of advice for prospective PhD students is to do your research. Anonymous databases, like PhD Stipends, provide more transparency around these offers. But you should talk to current graduate students, because it’s one thing to look at the numbers, and another thing to get a feel for how it is to live on that amount.

Further Reading: How to Read Your PhD Program Offer Letter

7:54 How did you initiate the negotiation process for your PhD stipend offers?

John negotiated his stipend offers during his interviews. He went to visit two universities in person for interviews, and had a virtual interview a University 3. His first interview was at University 2. During the visit, they have an itinerary and fully scheduled day. The experience is like a whirlwind. He prepared a set of questions for faculty members and set of questions for Graduate Director. With the Graduate Director, he talked about the PhD program as a whole to get their insight. Then he directly asked the Graduate Director if there is any other money available, such as other fellowships, and explained that he has other offers with higher financial value. The Graduate Director is the one that can control the money. The faculty can only put in good word on a student’s behalf. So as a prospective PhD student, you should know who you can talk to and know who you can negotiate with. You don’t need to be afraid to ask tough questions about financial aid.

The PhD program interview was a good time to negotiate PhD stipend offers. John waited until he received all offers to see where he stood across the field, and this gave him some leverage. Negotiating like this is is what people do with any other job. John told the Graduate Director that he had other offers, but he didn’t show them the letters themselves. Negotiating before receiving all other offers and before the interview can seem desperate. But if he negotiated after the visit, it might seem like that offer wasn’t his first choice and he was only negotiating after losing another offer. John also believes that talking in person is the best type of communication. Negotiating in person puts them on the spot.

During his interview visit for University 2, John asked the Graduate Director about the potential for a better financial package. The Graduate Director told John that they would get back to him a couple hours. Later that day, John received an email with a offer for a fellowship package. This showed John that they were willing to work on his behalf. He was surprised by this because he had expected them to negotiate and push back. During the interview visit, the department is most focused on recruitment, so they quickly considered his request and acted on it.

John went into the meeting with a set plan for negotiation. He had a notebook and visibly took notes during the conversation, which indicates that he took the negotiation seriously. Treating graduate school interviews like a professional scenario sets you up for success.

14:35 What new offer did you receive after negotiating?

Because he negotiated with the Graduate Director, John received an offer of a university fellowship instead of a teaching assistantship. The new offer was university-based funding, not department-based funding like his original offer. The university fellowship had different teaching requirements than the department teaching assistantship. It was more money in total, as well as better health care coverage. This showed what kind of control the department and university has over financial awards for PhD students. Even if the university can’t raise stipends, they can cover more fees or provide better benefits.

16:22 What outcomes did you get from negotiating with the other two universities?

John learned that not everyone would negotiate. At Michigan State, he had a generous offer that he was already happy with. Even so, he asked the Director of Graduate Studies at Michigan State about his financial award. The director kindly told him that his original financial award was what the department was willing to offer. John later learned that his department offers different financial packages based on a tiered system, and he was happy with the offer he received.

At University 3, John had a virtual meeting with the department. John brought up that he had offers with much more value than what they had offered him. John says that honestly, he was displeased with University 3’s financial offer. He learned that due to financial constraints at University 3, the department couldn’t offer more money. The department suggested term-to-term options. John didn’t want to be on his toes every semester wondering if he’d get paid. Though University 3 offered paid tuition, the money offered for teaching/research was not enough to even consider.

It’s important for prospective PhD students to recognize that some offers only tell you about the first year, while others present a five-year plan for funding.

19:35 Based on what you experienced, what would you do to negotiate differently?

John says he wouldn’t change much. While he knew negotiation was possible, he personally didn’t know anyone in his cohort group that negotiated their stipend offer. John heard from his advisors and mentors that it’s ok to ask, but you have to know to ask. John says this is one of those hidden things in academia. If prospective graduate students receive multiple offers, this is a chance to use offers against each other.
even if you get one offer, be happy, but if you get more offers you can use them

Emily brings up that often, applicants don’t feel a lot of confidence. They often think, “Who am I to be receiving these offers?” This imposter syndrome deters prospective PhD students from negotiating their stipends and ensuring that they receive the best offer.

22:27 How did you know negotiating your PhD offer would be possible and welcome?

John’s MA program advisor told him how to negotiate PhD stipend offers. First, you have to apply to multiple universities and know their programs well. Second, you need to know who you want to work with. Third, you need to talk with current graduate students. This is the most important advice. If you find their email on department websites, you can email them directly. Fourth, online communities like GradCafe help you connect with people who can help you.

John says that graduate school applicants should treat a PhD position like any other job. John says this profession should not be excluded from the process of negotiation. John’s experience at GEAR UP, where he helped low income students fight for undergraduate school money, showed him that there is a lot of money out there. He says it’s unfortunate so many undergraduates go into a lot of debt, when there are all types of money out there for different skills and talents. John wonders why graduate students can’t have that money too? There are different organizations, based in different fields, but money is out there. He suggests prospective students apply to everything they’re qualified for, but they also ask universities and departments what they can give.

Emily adds that prospective PhD students need to consider cost of living. If you have school A versus school B with higher stipend and in lower cost of living, you can ask the school A’s department what they can do to make the offer comparable.

26:44 Has your negotiation had any lasting impact on your graduate career?

John says the negotiation process doesn’t stop when you receive your final offer. Negotiation is a longer standing issue to think about in the future. At Michigan State, John and his peers negotiate for conference money, travel money, research money for the summer. Some graduate students can’t find money beyond teaching assistantships. Because he considered these benefits in his financial offer, he accepted a position that allows him the time and money to not worry. He has summer funding and he can teach online. For instance, he taught a seven week class online while being in Ukraine for research. He chose a school with an institutional investment. The department is doing well and it is investing in its students. He saw that the department was willing to invest continually in their students. He thinks the investment will continue after he graduates.

29:33 Final Comments

John says prospective graduate students should feel free to reach out to him. He likes to help in any way he can. When you get your offers, the first thing you should do is celebrate, and get a round of applause. After celebrating, look over your financial offer, and look beyond stipend to health insurance and benefits. If you get multiple offers, compare them. Be confident about your acceptance into a program and don’t be afraid to negotiate. Know that you have power in these situations. Even though graduate students often don’t have much power, this is the situation where you do. You have all the power and you should use it while you can.John treated PhD offers like job offers because it’s also a job, in literal and figurative sense.

31:27 Conclusion