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How to Enter Undocumented Fellowship Stipend and Scholarship Income into TurboTax

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Please note that this post was published for tax year 2015.

Entering undocumented fellowship income into TurboTax is slightly unintuitive, but the steps below will show you how.

1. Under the ‘Federal Taxes’ and ‘Deductions & Credits’ tab, press ‘Continue.’

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2. On the ‘Let’s check for tax breaks’ page, select ‘Jump to the full list.’ Scroll down to ‘Education’ and press ‘Show more.’ Select ‘Start’ for ‘Expenses and Scholarships (Form 1098-T).’

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3. Counter-intuitively, to enter undocumented fellowship income, select ‘Yes’ on the section regarding higher education expenses.

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4. Enter your proper personal information on the next three screens.

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5. To enter undocumented fellowship income, say that you did not receive a 1098-T (but if you did receive one for other scholarship and fellowship information, say yes and enter the information from the form).

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By default, universities are supposed to issue each student a 1098-T. TurboTax wants you to verify that you qualify for an exception to that rule. The most likely reason that a grad student receiving a stipend would not receive a 1098-T is that he had more scholarship/fellowship income than qualified education expenses.

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6. Click through the next several screens, entering your proper information. (I’m skipping the expenses section for now because I’m focusing on the fellowship stipend income. However, if you have any relevant education expenses you should enter them at this point at this point.)

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7. Finally, we arrive at the Scholarships and Financial Aid page – click ‘Continue.’

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8. On the next screen, say ‘Yes,’ enter the amount of your undocumented fellowship/scholarship information under ‘Other Scholarships/Grants/Fellowships,’ and press ‘Continue.’

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9. Enter your proper information on the next screen.

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10. Next, TurboTax asks what you used this fellowship/scholarship information for. The hypothetical grad student didn’t pay room and board, etc. with this fellowship, so his answer is ‘No.’ If you did, just enter your information here. (For what it’s worth, I also answered ‘Yes’ at this stage to test it out, and it didn’t affect the outcome.)

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11. Enter your proper information on the next three screens.

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12. Next, TurboTax gives you the option to enter the information for another student.

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13.  TurboTax concludes that you can’t claim an education deduction or credit, which is what we expected as our intention was to report additional income.

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That’s it!

Check: Under tabs ‘My Account’ and ‘Tools,’ click ‘View Tax Summary’ and then ‘Preview My 1040’ to verify that the income you entered was added to the correct line on your tax return.

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Parent post: Grad Student TurboTax Guide: 2016 Edition

We at Grad Student Finances are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.

How to Enter 1098-T Fellowship Stipend and Scholarship Income and Qualified Education Expenses into Turbotax

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Entering 1098-T information – scholarships, fellowships, and qualified education expenses – into TurboTax is very straightforward. The software should prompt you through the process fully under the ‘Deductions and credits’ section, or you can follow the steps below.

1. Under ‘Setup,’ choose ‘College expenses/tuition’ and then press ‘Continue.’

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2. Choose the ‘Federal Taxes’ and ‘Deductions and credits’ tabs and then press ‘Continue.’

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3. Then, press ‘Start’ to enter your 1098-T information.

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4. Select ‘yes’ to enter your higher education expenses.

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5. Click through the next four screens, entering your proper educational information, and concluding with reaffirming that you want to enter your 1098-T into the software.

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6. Now, replicate your 1098-T information exactly in the software. In this example, I am using both the fellowship and scholarship income and the qualified education expenses for the hypothetical grad student. If the fellowship stipend were not reported on the 1098-T, the amount in Box 5 would be only slightly larger than the amount in Box 2.

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7. Click through the next four screens, entering your proper educational information. I selected that the income the hypothetical student reported on the 1098-T is not duplicated elsewhere on the tax return, like on a W-2 or 1099-MISC.

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8. The next section is where you need to enter additional qualified education expenses such as required textbooks. The hypothetical grad student doesn’t have any, but you might.

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9. In this step, TurboTax verifies that you entered your scholarship income (Box 5 on the 1098-T) correctly.

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10. Sometimes universities bill qualified education expenses in a different semester from when they post the scholarships to pay for them. TurboTax asks in the next step if that is the case for your 1098-T, because the bill and scholarships can be pulled into the same tax year. The hypothetical student’s 1098-T doesn’t have this issue, but consider if yours does (e.g., the amount in Box 2 is approximately double that in Box 5 or vice versa).

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11. TurboTax asks if you used your scholarship income for room and board and other non-qualified education expenses. The hypothetical student did not, but your answer could easily be yes. (I tried answering this both ways, and the result was the same for my example.)

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12. Click through the next three screens, entering your proper educational information.

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13. TurboTax pauses for a summary page in case you have more student information to add.

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14. TurboTax concludes that the hypothetical student can’t claim an education tax deduction or benefit. That is what we expected because the purpose of this 1098-T was to enter net non-compensatory pay rather than get a tax break.

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That’s it!

Check: Under tabs ‘My Account’ and ‘Tools,’ click ‘View Tax Summary’ and ‘Preview my 1040’ to verify that the income you entered was added to the correct line on your tax return. In this example, TurboTax generated a 1040A.

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Parent post: Grad Student TurboTax Guide: 2015 Edition

We at Grad Student Finances are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.

 

How to Enter W-2 Stipend Income into TurboTax

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Entering your W-2 stipend information into TurboTax is very straightforward. The software will naturally prompt you to enter the information if you tell it you received a W-2, so you can follow its lead in this case.

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Alternatively, follow the steps below:

1. Under the ‘Federal Taxes’ and ‘Wages & Income” tabs, click ‘Continue.’

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2. Under ‘Wages and Salaries,’ click ‘Show More’ and ‘Start.’

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3. Select ‘Work on my W-2 now’ and ‘Continue.’

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4. In the next several screens, you will replicate the information printed on your W-2 in TurboTax. I have entered our hypothetical grad student’s income into the correct boxes.

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Check: Under tabs ‘My Account’ and ‘Tools,’ click ‘View Tax Summary’ and then ‘Preview My 1040’ to verify that the income you entered was added to the correct line on your tax return.

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Parent post: Grad Student TurboTax Guide: 2015 Edition

We at Grad Student Finances are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.

 

Paying Income Tax throughout the Year

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Most employees have income taxes withheld on at least a monthly basis. The IRS expects that you will pay at least a portion of your taxes throughout the year. If you are not having income tax withheld from your paycheck, the IRS expects you to file quarterly estimated tax. If you owe too much money at the year of the year, you may be fined.

The most simple and easy way to make sure you are paying federal and state (if applicable) income tax throughout the year is to have them withheld from your paycheck. To have income tax withheld, you will need to submit a W-4 form to your payroll office.

Some payroll offices may not withhold tax from non-compensatory pay, even if you ask. In this case, you may need to file quarterly estimated tax.

To determine if you need to file estimate tax payments and to calculate your payments if you do, use the Estimated Tax Worksheet in Form 1040-ES (page 7) or Publication 505 Worksheet 2-1 (p. 35). You will project your income for the year and do a rough estimate of the taxes you will owe at the end of the year. Each quarter, you will submit a payment to the IRS in lieu of withholding.

If you will owe less than $1,000 in additional tax for the year or meet some other criteria based on your previous year’s return you will not be fined for not making estimated tax payments. (See Do You Have to Pay Estimated Tax? for a questionnaire or Publication 505 Figure 2-A for a flow chart (p. 23).)

We at Personal Finance for PhDs are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.

How Do I Prepare My Taxes during Filing Season?

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There are several methods by which you can prepare your tax return, but ultimately you are responsible for its accuracy and completeness. It is worthwhile to learn the basics of how taxes are calculated when your return is simple so that you can understand the system once your personal returns become more complicated, even if you no longer prepare them yourself.

1) Prepare your tax return manually.

This method may be quite quick and easy for simple tax situations or prohibitively difficult for complex ones. (The majority of graduate students do have simple tax situations because they take the standard deduction.) The advantage of this method is that you have total control over how your return is filled out. The downside is that you don’t know what you don’t know, so you may inadvertently make a mistake.

Related: Why Don’t More People Do Their Own Taxes?

2) Prepare your tax return using software.

This is the most popular method for graduate students. However, the free versions of tax software often have difficulty understanding the way graduate students are paid. You may not easily find how to enter fellowship income or the software may try to determine that you are self-employed, which is not typical for grad students receiving fellowship income from their universities or funding agencies. The advantage of this method is that it is likely to catch some unusual situations so you can perhaps be more confident that you didn’t miss any deductions or credits you may be eligible for. The disadvantage is that you don’t directly prepare your return and you have problems communicating with the software if you have fellowship pay.

Related: Our Experience Using Tax Software

3) Pay a tax preparer to do your return.

This is likely only the best option for people with very complex returns who are convinced the preparer properly understands how to report grad student income, which many do not. It is still your responsibility to make sure that your return is correct so you should double-check at least where your income has been reported.

4) Give your return to your parent to fill out.

Many graduate students do rely on their parents to fill out their tax returns. The advantage to this method is that you don’t have to spend the time to prepare the return yourself, even though you should still check it for accuracy. The disadvantage is that the parent may have little to no knowledge of the specific tax needs of graduate students and are less likely than professional tax preparers to be aware of the differences.

No matter which preparation method you choose, you need to make sure that the ultimate result is correct. Graduate student tax returns can potentially be very simple but are also easy to fill out incorrectly when non-compensatory pay is involved. In that case, it is only a matter of making sure that your income is reported in the correct line on your tax return.

We at Grad Student Finances are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.

 

How Do I Calculate and Report My Taxable Income?

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The various types of income that you have may be reported in different places on your tax return, depending on their type. You must first catalog all the different types of income you have had throughout the year. Income from outside jobs (W-2 or 1099-MISC box 7), investment income, etc. are not unique to graduate students, so you can determine how to properly report it by reading the instructions on the forms that you receive.

This page will cover only the typical types of income that graduate students receive for their roles as graduate students. However, you must include all your reportable income on your tax return.

1) Identify the Type(s) of Graduate Student Income You Received

There are several common sources of income for graduate students, but they will ultimately be able to be classified as compensatory or non-compensatory. (The description below is how universities generally treat the various types of graduate student pay, but exceptions are possible.)

Compensatory pay is money you are paid for work that you do, for instance as an RA or TA. This pay will be reported on a W-2, which you will receive in January each year.

Non-compensatory pay is an award you are giving that is (allegedly/officially) unrelated to your work.

Fellowships are examples of non-compensatory pay that provide your stipend. If you have taxes withheld, non-compensatory pay will likely be reported on a 1099-MISC in box 3. If you did not have taxes withheld from your stipend, you may receive a courtesy letter, a 1098-T or no documentation whatsoever to indicate your non-compensatory pay.

Scholarships are also non-compensatory pay and are generally used to pay tuition and fees on behalf of the student. You need to take your scholarship income into account when you calculate your taxable income for the year, even if you never received it in your personal accounts. If scholarships were posted to an account under your name at your university (e.g., Bursar account, Cashier’s account), they are part of your gross income for the year.

As you may not be explicitly told that you have received non-compensatory pay (for example, in addition to your compensatory pay), it is up to you to figure out if you received any and what the amount was.

2) Calculate Your Gross Income

After you identify whether you have received compensatory pay, non-compensatory pay, or both, you need to add up all your sources of grad student income. Keep your compensatory and non-compensatory pay separate for the time being.

All your compensatory pay should be reported on a W-2, so that should be easy to find. If you have more than one W-2, just add the gross pay together.

You can find your non-compensatory pay officially reported on a 1099-MISC (box 3) or a 1098-T (box 5). Since you need to look for the less well-documented sources as well, make sure you capture all the fellowship and scholarship income you may have received by looking at your courtesy letter (if any), your bank account statements, and your Bursar/Cashier’s account transaction history. (The 1098-T, if you receive one, may reflect the scholarships posted to your Bursar/Cashier’s account in box 5, or box 5 may be used only to report your non-compensatory stipend.) Add all these portions of your income together, being careful not to double-count any sources or to leave any out. At this stage, your gross non-compensatory pay may be very high as it will include the scholarships that paid your tuition and fees. (See IRS Publication 970 Chapter 1 for more information.)

3) Use Your Qualified Education Expenses to Reduce Your Tax Burden

If you have qualified education expenses, you have the opportunity at this stage to reduce your taxable income or the total amount of tax you will pay for the year. There are a few different mechanisms by which you might do so, some of which are mutually exclusive. You can’t double-count your qualified education expenses, even if you are able to use more than one of these mechanisms. If you take the Lifetime Learning Credit, you can’t also take the Tuition and Fees Deduction (Publication 970 p. 22-23).

1) Your non-compensatory pay can be considered tax-free if it was used to pay qualified education expenses (Publication 970 Chapter 1). Qualified education expenses include required tuition and fees and course-related expenses, but not room and board, travel, research, etc. See Publication 970 Worksheet 1-1 to calculate the taxable portion of your non-compensatory pay. Basically, you will subtract your qualified education expenses from your non-compensatory pay, and only report as taxable income any excess non-compensatory pay. If you received a 1098-T from your university, you should see (some of) your qualified education expenses for the year listed in box 2. Whether or not you received a 1098-T, look in your Bursar/Cashier’s account transaction history to find the qualified education expenses paid through that mechanism, and also add in your course-related expenses.

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2) You may be able to take the Lifetime Learning Credit, which awards you up to $2,000 off your taxes for up to $10,000 in qualified education expenses. (The credit is worth 20% of the expenses.) See Publication 970 Chapter 3 for more details. You can choose to use the Lifetime Learning Credit to reduce the taxes you pay on your compensatory pay. You might also choose to include all of the scholarship and fellowship income that might otherwise be tax-free (point 1) in your gross income to use the Lifetime Learning Credit for your qualified education expenses. See the Publication 970 Chapter 3 section titled “Coordination with Pell grants and other scholarships” for more details and be aware of the effect on the rest of your tax return if you choose this option. To claim the Lifetime Learning Credit, you need to fill out and submit Form 8863 along with your 1040.

3) You can deduct up to $4,000 from your compensatory pay for tuition and required fees (not including health insurance premiums) using the Tuition and Fees Deduction. See Publication 970 Chapter 6 for more details. To claim the Tuition and Fees Deduction, you need to fill out and submit Form 8917 along with your 1040.

Tip: The simplest approach here is to exclude from your taxable income the portion of your non-compensatory pay that went to your qualified education expenses, then use the Lifetime Learning Credit or the Tuition and Fees Deduction for any of your remaining qualified education expenses. This is particularly true if your qualified education expenses exceed $10,000 since that is the limit for the Lifetime Learning Credit. However, you may end up paying less in taxes overall by reporting a higher amount of non-compensatory income (<= $10,000 higher) and then taking the Lifetime Learning Credit for your qualified fees instead of treating that income as tax-free. You need to delve into the details in Publication 970 or use tax software to determine which approach is more advantageous to you, as claiming a higher or lower income may affect other parts of your tax return.

Reporting Your Income and Education Credits and Deductions

Your compensatory and (net) non-compensatory pay, after you have calculated them, will both end up being reported in the same line on your 1040.

The instructions for Form 1040 (the basic tax return form) state that W-2 income in box 1 (wages, tips, and other compensation) should be reported in line 7 (source: 1040 instructions, page 10). (If you are using Form 1040-EZ, W-2 income goes to line 1 (source: 1040EZ instructions, page 8). If you are using Form 1040A, W-2 income goes to line 7 (source: 1040A instructions, page 11).)

You should report the taxable portion of your fellowship and scholarship income in line 7 of Form 1040 (or line 1 of Form 1040EZ or line 7 of Form 1040A) with the letters “SCH” to the left of the entry (source: Publication 970, page 6).

All of your income related to being a grad student should end up in line 7 of form 1040, with or without “SCH” next to it, depending on the source.

Related article: Where to Report Your PhD Trainee Income on Your Tax Return

If you decided to use the Tuition and Fees Deduction, report the deduction in line 34 of your 1040 or line 19 of Form 1040A. If you decided to use the Lifetime Learning Credit, report the credit in line 50 of your 1040 or line 33 of Form 1040A.

We at Grad Student Finances are not tax professionals, and none of the content in this section should be taken as advice for tax purposes.