Grad students frequently choose to prepare their federal and state tax returns using tax software, but using software to prepare an accurate return is not always as straightforward as it should be. The difficulty grad students may encounter when using tax software depends on the type(s) of tax documentation their universities and funding sources send them. Before you start using tax software, you’ll need to think about your grad student income and assess the tax forms you received.

These guides include step-by-step instructions for entering your grad student income and qualified education expenses into different brands of tax software. Preparing the remainder of your return, which might include other sources of income and non-educational deductions and credits is up to you to research.

For the purposes of these guides, I imagined a hypothetical grad student with stipend income.

The ‘personal information’ relevant to the student’s taxes is:

• 24 years old
• single
• living in Durham, NC
• not a dependent; doesn’t have dependents

The student received a $25,000 stipend. Her scholarships totaled $22,000 and her qualified education expenses totaled $20,000. If she had taxes withheld, they were $1,500 for federal tax and $1,000 for state tax.

How to enter your grad student income and qualified education expenses into TurboTax (2016 Edition)

Parent post: Grad Student Income Tax 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.

 

Welcome to the 2016 edition of the Grad Student Income Tax Guide! While no one really wants to shell out money in taxes, it is part of our civic duty. Our intention with this Guide is to make the process of preparing your grad student tax return as easy as possible. Grad student non-compensatory income (fellowship, scholarship, training grant, etc.) is unfamiliar to many people, including tax preparers, but it’s actually not that complicated to understand and report properly. This tax guide applies to US graduate students who are US citizens, though other students in the US may find aspects of it illuminating.

We here at Grad Student Finances are not tax or financial professionals; nothing you read on this site is advice and you are still entirely responsible for the accuracy of your tax return(s). At every possible point, we will provide references to the tax code to substantiate the steps in the guide.

 

Think about Your Income and Assess Your Tax Forms

Before you start working on your tax return for the year, you must think about what your true taxable grad student income is and assess the tax forms you received from you university. Skipping this step and jumping straight into preparing your return may result in confusion, frustration, incorrect returns, and even the over- or under-payment of your tax due.

Before you begin: Think about your income and assess your tax forms.

Where Your Grad Student Income Should Be Reported on Your Tax Return

It’s also important to understand where your grad student income should ultimately be reported on your tax return. For how confused tax software and tax preparers get over this issue, it has a surprisingly simple answer.

Educate yourself: Find out where your grad student income goes on your tax return.

Tax Return Preparation Methods

The first big step you’ll take toward preparing your income tax return is to choose what method to use. Generally, your options are to prepare it yourself (manually), to use tax software, to outsource it to a professional, or to outsource it to a relative or friend. There are pros and cons to each method, and your decision should largely depend on the complexity of your (tax-related) life and the resources available to you.

If you have a simple (tax) life, the fastest and easiest route to prepare your tax return may be to do it manually. We have provided a step-by-step method for manually calculating and reporting your grad student income. How to incorporate your other income sources and possible deductions/credits into your return is up to you to research.

If you choose to outsource the preparation of your tax return, you should still look over the manual guide so that you can double-check that your grad student income has been calculated and reported correctly.

Probably the most popular route grad students take to prepare their tax returns is to use tax software. While this is probably the least expensive way to have a comprehensive return prepared by a ‘professional,’ because the software is not designed with grad student (non-compensatory) income in mind, it can often be tricky to get it to properly interpret the information you give it. We have generated step-by-step instructions with screenshots for entering your grad student income into tax software (for the rest of your return, you can follow the software prompts).

Further reading: What Method Should You Use to Prepare Your Tax Return?

Understanding Your Grad Student Taxes

At the end of the day, what you need is an accurate tax return, but it’s also highly beneficial to understand how your financial life as a graduate student fits in with the tax code. The best resource for learning about it is IRS Publication 970. If you understand the types of income you (may) receive as a graduate student, you can prevent yourself from falling for the tax lies that are pervasive at universities and answer questions such as can a graduate student contribute to an IRA? To be a financially literate citizen, you should also understand concepts like marginal tax brackets, credits, and deductions.

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.

You may have received money or benefits from quite a few sources of the course of a calendar year. Some of that money is taxable income and some of it is not. In this article, we will focus only on the income and expenses related to your role as a graduate student. Those income sources and relevant expenses might be documented by official tax forms generated by your university and/or funding source, but in some cases the university is not required to.

Your sources of income as a graduate student may or may not be readily apparent to you.

The most obvious source of income is your stipend, or the money you are given to pay for your living expenses. Your stipend may be compensatory (given in exchange for work) or non-compensatory (given as an award).

If your stipend is from an assistantship, your university will provide you with a W-2. This type of documentation indicates that your stipend is taxable compensation or earned income.

If your stipend is from a fellowship (or training grant), your university might report your fellowship income officially on a 1098-T in box 5 or 1099-MISC in box 3. However, your university or funding source is not required to report your fellowship to you or the IRS, so it may send you an informal courtesy letter or no documentation whatsoever. This type of documentation or lack of documentation indicates that your stipend is not taxable compensation or earned income. (Any “fellowship” income that is given in exchange for work will be reported on a W-2 and is compensatory.)

Related articles:

• What is a 1098-T?
• What is a 1099-MISC?
• What is a courtesy letter?

A less obvious source of income is the money that pays for your university-related benefits such as your tuition, required fees, and health insurance premium. This money is scholarship income, which is non-compensatory. Similar to fellowship income, the official documentation of scholarship income will be on a 1098-T, but it also may not be reported to you at all.

Related article: What is a 1098-T?

Another important element in this equation is your qualified education expenses. Tuition, for example, is a qualified education expense, while health insurance may not be. You can find a more complete list of qualified education expenses in Publication 970 in each chapter (the definition of qualified education expenses changes with the education tax benefit you are trying to take). Your university may add up your qualified education expenses for the year and report them on a 1098-T, or it may not.

Related article: What are qualified education expenses?

If you don’t receive a 1098-T from your university, you can still figure our your scholarship income and qualified education expenses by viewing the transactions in and out of your student account (which may be termed your Bursar or Cashier’s account or have another name). It’s also a good idea to check the amounts reported on your 1098-T against these transactions. You may have additional qualified education expenses that did not pass through your student account, such as money you spent on required textbooks.

Before you begin preparing your tax return, make sure you can answer these questions:

1. What amount of compensatory stipend pay did I receive? What amount of non-compensatory stipend pay did I receive?
2. What documentation did I receive or not receive for my stipend?
3. Did I have any scholarship income? If so, what is the total amount and is there documentation?
4. Did I have any qualified education expenses? If so, what is the total amount and is there documentation?

Use the answers to these questions to help you prepare your tax return.

Parent post: Grad Student Income Tax 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.

 

If you are receiving a fellowship stipend and your university does not allow you to have income tax withheld from it, you may be required to make quarterly estimated tax payments. These estimated tax payments need to be listed on your federal tax return so you receive credit for making them. Luckily, entering estimated tax payments into TurboTax is fairly straightforward. Follow the steps below to account for your estimated tax payments on your federal tax return:

1. Under the ‘Federal Taxes’ and ‘Deductions & Credits’ tabs, click ‘Check for tax breaks’ and ‘Show me the full list.’ Scroll down to ‘Estimates and Other Taxes Paid’ and click ‘Start’ next to ‘Estimates.’

2. Under ‘Estimated taxes’ and ‘Estimated tax payments,’ click ‘Start’ next to ‘Federal estimated taxes for 2016 (Form 1040ES).

3. Affirm that you paid federal estimated tax in 2016 and press ‘Continue.’

4. Enter the amounts of the federal estimated tax payments you made in 2016 and press ‘Done.’

5. Under ‘Estimates and Other Income Taxes Paid’ and ‘Estimated Tax Payments,’ choose ‘Start’ next to ‘State estimated taxes for 2016.’

6. Affirm that you paid state estimated tax in 2016 and press ‘Continue.’

7. Enter the amounts of the state estimated tax payments you made in 2016 and press ‘Done.’

 

That’s it!

Check: The first page of the 1040A shows the fellowship income in Line 7 and the estimated tax payments in Line 41.

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.

 

This year, TurboTax recognized the fact that some graduate students receive 1099-MISC forms for their fellowship income and does not force you into a self-employment trap. Great! Unfortunately, TurboTax does not report the income as fellowship income but rather “Other” income. If you follow the steps that TurboTax suggests for 1099-MISC fellowship income, 1) you’ll have to pay $35 to upgrade the software and 2) your income will be reported in line 21 of the 1040 instead of line 7 with “SCH” next to it.

If your 1099-MISC box 3 income is from a fellowship or training grant, you will need to enter the 1099-MISC information into TurboTax piecemeal to report it as a fellowship/scholarship. Entering your 1099-MISC information into TurboTax will take two general steps: 1) entering the income from Box 3 (step 1) and 2) entering the tax withheld from Boxes 4 and 16 (steps 2 to 4).

1. First, follow the steps for entering undocumented fellowship/scholarship income into TurboTax to enter the income reported in Box 3 of your 1099-MISC.

2. Go to the ‘Federal Taxes’ and ‘Deductions & Credits’ tabs. Click ‘Check for other tax breaks’ and ‘Jump to the full list.’ Next to ‘Estimates and Other Taxes Paid,’ click ‘Show more’ and then press ‘Start’ next to ‘Other Income Taxes.’

3. On the ‘Income taxes paid’ page, scroll down to ‘Other Income Taxes Paid in 2015’ and then press ‘Start’ next to ‘Withholding not already entered on a W-2 or 1099.’

4. Enter the tax withheld from Boxes 4 and 16 of your 1099-MISC into the first Other Withholding fields and press ‘Continue.’

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.

Parent post: Grad Student TurboTax Guide: 2015 Edition

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.

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.’

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).’

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

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

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).

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.

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.)

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

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

9. Enter your proper information on the next screen.

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.)

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

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

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.

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.

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.