Taxable Income

Disclaimer: No information on this page was prepared by a certified public accountant, and it should in no way be considered as tax advice. This is by no means a comprehensive tax resource and the people contributing to it are, just like you, students and researchers. It's meant as a guide on filing income taxes, but you should base your final decisions on information from either the IRS or the FTB.

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What's Considered Taxable Income?

Form 1098-T

Most of us should have received a 1098-T, which is a form the university is required to file if it receives qualified tuition and related expenses from either us, our employers, or a fellowship.

The amount of box 1 shows the payments received for qualified tuition and related expenses. Check your CARS account through Bear Facts to see the total amount paid by your funding source. There will be a difference between this amount and the one shown on box 1 and it usually represents the class pass fee (transit) and health insurance, both of which are also non-taxable to the best of my knowledge.

The amount of box 2 is supposed to include the stipend received from scholarships, grants, or fellowships. As far as I know, this number is usually wrong and isn't reliable. Sometimes it reflects less stipend and other times more. You should refer to your fellowship award letter or to your monthly paychecks to more accurately calculate the amount of stipend received.

W-2 Forms

You might have also received a W-2 form(s) if your employer withheld part of your income to pay for your income, Social Security, and Medicare taxes.

The amount of box 1 should represent the total of earnings from that employer during the tax year you are filing for. You should add the amounts from box 1 of all W-2's you receive to calculate your total earnings subject to withholding.

Box 2 shows the amount of federal income tax withheld, which should pay at least part of your tax liability.

Taxable and Non-taxable portions of Fellowships

If you received a fellowship and are a degree candidate at a qualified educational institution (which we generally are), there is a part of your fellowship that is non-taxable (unless the terms of the fellowship do not prohibit the expense). The tax-free portion of your fellowship comprises the amount of it used to pay:

  • Tuition
  • Fees
  • Books
  • Supplies
  • Equipment

The last four items in the above list are tax-free only if required of all students in the course of study. If not, you might still be able to deduct it by itemizing deductions, which should require schedule A of form 1040 and which only makes sense if your itemized deductions are greater than the standard deduction for your filing status ($8,450 if single for the 2006 tax year). The taxable portion of your fellowship comprises the amount used to pay for:

  • Room & Board
  • Travel
  • Teaching
  • Research Services
  • Other

Source: Table 1-1 on p. 6 of Publication 970: Tax Benefits for Education.

Total Taxable Income

The sum of your stipend (from fellowship award letters or paychecks and W-2's) minus the non-taxable part of your fellowship should amount to your taxable income. Note that you shouldn't deduct your tuition if you haven't included it as part of your fellowship stipend in the first place.

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