Fellowship Taxes

[aishaliane]

This is my first full year receiving a monthly fellowship stipend that does not withhold taxes.  The funding agency does not send W2 or any other type of tax documents (because fellows are not classified as employees).  Fellows simply receive a letter that states the amount we were paid during the year.  The total fellowship stipend that I received in 2022 was reported on Form 1040, line z under Additional Income.  Thus far in 2023, I have not paid quarterly taxes.  Should I submit quarterly taxes in September or wait to file next spring? 

[johnd84]

Hi @aishaliane and thanks for your question! 

Fellowships can be tricky. If part of the amount goes to pay for educational expenses then that part only is not taxable. Keep in mind that an amount for room and board and meals is not a qualified educational expense. Now I'm assuming this fellowship is in relation to education, but it may not be. 

So it is possible your income is taxable, and you will be charged an underpayment penalty for not making quarterly payments. This "penalty" is less of a penalty and more interest, so that amount should be small. The safest bet is to reduce your fellowship amount by the amount that is considered qualified educational expenses if any. Then determine which tax bracket you are in Which tax bracket am I in?  Then you can make quarterly payments based on the tax bracket percentage. 

For example if I go into our calculator linked above, I put in that I'm single and my taxable amount is 75,000 that puts me into the 22% tax bracket. Now lets say I get a check for my fellowship every month. I want to put 22% of that amount towards estimated payments which are due on April 15, June 15, September 15, and January 15. Keep in mind some states the last payment is due in December. 

I hope this helps. 

[KochuK]

Hi aishaliane, thanks for posting an event question.

Assuming the circumstance is the same tax year 2023 as that of tax year 2022, you report the fellowship stipend as other income that is subject to income tax.

Please use TurboTax Tax Caster to estimate your tax year 2023 tax liability, if any.

https://turbotax.intuit.com/tax-tools/ 

Generally, you must make estimated tax payments for the current tax year if both of the following apply:

• You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.
• You expect your withholding and refundable credits to be less than the smaller of:
  • 90% of the tax to be shown on your current year’s tax return, or
  • 100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months.)

Estimated Tax FAQs

https://www.irs.gov/faqs/estimated-tax

Hope the above helps.

Thank you,

Kitty

[JaredS_CPA]

Hello aishaliane,

Thank you for participating in the Ask the Experts event. As to your question, just my speculation, but the funding agency may not send any type of tax document because it is undetermined how much may be taxable and leaves that up to you as the taxpayer to figure out.

From Topic No. 421, Scholarships, Fellowship Grants, and Other Grants on the IRS Website, we read that all or part of your fellowship stipend may actually be tax-free. That article will give you some guidance. Here is another good article from TurboTax: Are my scholarships, fellowships, or grants taxable?

Whatever taxable amount is determined should be reported on Form 1040, Schedule 1, line r.

I hope that helps.

[Holly W]

Hello @aishaliane 

Thank you so much for being here today!  We are so happy to have you!

According to the IRS Publications 970, stipends reported to you on a stipend letter are treated for tax purposes as taxable scholarships. Per IRS Publication 970, taxable scholarships and fellowships should be reported on the tax return as follows:

• Form 1040 – Line 1; also enter “SCH” and the taxable amount in the space to the left of line 1.

Depending on your individual tax situation, such as, if you have taxable income after your expenses, if you have federal withholding elsewhere, etc., also determines the need for Estimated Taxes.  Per IRS Pub 505, 

Estimated tax not required.

You don’t have to pay estimated tax for 2023 if you meet all three of the following conditions.

• You had no tax liability for 2022.

• You were a U.S. citizen or resident alien for the whole year.

• Your 2022 tax year covered a 12-month period.

But, the general rule is:

In most cases, you must pay estimated tax for 2023 if both of the following apply.

1. You expect to owe at least $1,000 in tax for 2023 after subtracting your withholding and tax credits.

2. You expect your withholding and tax credits to be less than the smaller of:

   1. 90% of the tax to be shown on your 2023 tax return, or

   2. 100% of the tax shown on your 2022 tax return. Your 2022 tax return must cover all 12 months.

 As always, we do have some calculators to help you determine if you need to make estimated payments or not:  TurboTax Tools & Calculators .

I hope this answers your questions, if not, please feel to respond any additional information I can add!  

Cheers!

Holly W