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Grad Student Taxes

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Your taxes as a graduate student will be slightly different compared to when you were an undergraduate. You’ll also file your taxes differently compared to your full-time working peers. Follow our guide to ensure that you use the best possible method to maximize your return.

Overview: Grad Student Taxes

As a graduate student, you may encounter a variety of tax situations. Your taxes will depend on whether you can be claimed as a dependent, if you also have a job or if you completed an assistantship. Grants or scholarships you receive and whether you pay your own living expenses may also make a difference on your taxes.

Dependent Status

There’s a chance you could be considered a dependent as a graduate student. If you meet the qualifications, another person who pays the majority of your expenses could claim you as a dependent on his or her taxes and you would not have to independently file taxes.

You might be a dependent of an eligible family member or household member if you meet the following requirements:

  • You’re a full-time student under the age of 24.
  • You’re unmarried, or if you are married, you do not file taxes jointly.
  • You don’t claim anyone else as a dependent.
  • You’re a U.S. citizen.
  • You live with the person who can claim you as a dependent, though living away at college is allowed as long as your permanent residence is with that person.
  • You have more than 50% of your expenses paid for by the person claiming you.

If you meet all the qualifications and earn under $4,150 a year, you can be claimed as a dependent by an eligible relative until you are 25, regardless of whether you attend school full time.

Earned Income

If you work in addition to your graduate studies, you will receive a W-2 or 1099 from your employer, depending on if you are a regular employee or contract employee. If you have any other income from freelance or side hustle work, you’re required to list that as earned income and pay taxes on it as well.

New tax rates have been updated and you can refer to the table below for your income and rate.

Tax RateSingleMarried Filing Jointly
10%Up to $9,525Up to $19,050
12%$9,526 to $38,700$19,051 to $77,400
22%$38,701 to $82,500$77,401 to $165,000
24%$82,501 to $157,500$165,001 to $315,000
32%$157,501 to $200,000$315,001 to $400,000
35%$200,001 to $500,000$400,001 to $600,000
37%Over $500,000Over $600,000

Credits

If you’re single and your income is under $67,000 ($134,000 if you are married and file jointly) and you are at least part-time enrolled at an eligible educational institution, you can take the Lifetime Learning Credit of 20% of the first $10,000 you spend on qualified educational expenses.

The credit is worth a maximum of $2,000 and is not refundable, so it can zero out the amount you owe in taxes. Any credit overage won’t be refunded to you.

Deductions

If you choose not to take the Lifetime Learning Credit or your income excludes you from taking it, you can still deduct your tuition and other qualifying educational expenses if you received a scholarship, fellowship grant or tuition reduction that covered these costs. Those scholarships and grants are tax-free if:

  • They don’t exceed your qualified education expenses (the amount in excess is taxable).
  • They aren’t designated or earmarked for other purposes (such as room and board).
  • They’re not required to be used for qualified education expenses.
  • They don’t represent payment for teaching, research or other services required as a condition for receiving the scholarship (or require that future services be rendered).

Assistantships

When you have an assistantship at your university as a part of your graduate program, you receive pay and/or a tuition reduction in return for research or teaching services you provide. You’ll receive a W-2 form with your wages and withholding information if you’re an employee of your university.

If you’re employed at the university where you pursue your degree, you’re exempt from paying Medicare and Social Security taxes, so you will not see either taken out of your checks. Your tuition reduction, even if it pays the whole of your tuition, is not taxed, and neither are funds you use for fees to the university, books, supplies and other qualified educational expenses.

Non-Compensatory Income

If you received deferred tuition from your university from a fellowship or received grants and scholarships, that income is considered non-compensatory and your university is not required to provide you with a W-2 or 1099 form.

The money does not have tax withheld by the university, either, so you will have to pay those taxes later when you file. The portion of the non-compensatory funds that are used to pay for tuition, fees, and other educational expenses are not taxed and should be recorded on form 1098-T, which your university will provide you. It will detail your tuition, fees and expenses paid to the university. Any amount of non-compensatory income used for living expenses is taxable.

Source: IRS.gov

Grad Student Forms You Need to File

Before you file, be sure you have all the forms you need, specific to your grad student tax situation.

  • W-2: If you work for compensation and are an employee, you’ll receive a W-2 form. If you are an employee of your university through an assistantship, you may receive a W-2.
  • 1099: If you receive pay for work you perform as a contractor and earn over $600 from a single source, you’ll receive a 1099 form. You also may receive a 1099 from your university for your fellowship income.
  • 1098-T: Your university will send you a 1098-T tuition statement tax form, which outlines the fees and tuition paid to the university on your behalf. This will include tuition reductions, scholarships and grants you may have received that paid your tuition even if the funds never made it into your hands.
  • Record of eligible expenses: Your university will only include on the 1098-T form tuition and fees paid to the school. You may also have other eligible education expenses such as books and other course materials, so be sure you keep track of those as well.

How to File Grad Student Taxes

Choosing how to file your taxes is an important decision that will determine how long it will take you to file, as well as the amount of money you’ll need to spend to file. Decide your method of filing based on your knowledge and comfort with tax forms and understanding of your tax obligations.

By Hand, Online or Use a Tax Preparer

Filing paper forms by hand is fairly uncommon, but it is a free option that anyone can pursue. If you file your own taxes, you must be very comfortable with the tax code, understand all your tax obligations and available deductions and credits.

The best way to ensure that you find all the deductions you deserve is to use reputable tax software or work with a tax professional. Tax software will walk you through a series of questions and use your answers to fill out the requisite tax forms, then submits it all online for you. The software can quickly compare whether the Lifetime Learning Credit or tuition reduction will benefit you the most (you can only claim those educational expenses once) and saves you time from having to run the numbers yourself.

Most graduate students will be able to file their taxes for free with online tax software, but if you or your spouse are self-employed or have real estate or investment transactions, you’ll need to opt for a paid version.

The most expensive (but most thorough) option is to sit down with a tax professional. You will need to still gather all your forms and financial records, but the tax preparer can walk you through all the details of filing your taxes and educate you in the process. Some universities offer discounted tax preparation services, so ask your school’s business office for some resources.

Tax Forms You’ll Need to Fill Out

Even if you have a tax preparer help you with your taxes, you may need to fill out some forms to help you determine what portion of your grants or scholarship are taxable and other worksheets that may be relevant to your tax situation.

Your tax preparer or tax software can walk you through all the forms you need.

Source: IRS.gov

Mastering Your Grad School Taxes

Make sure you file your taxes as a grad student the right way and use the best possible method to maximize your return. There are many tax law intricacies (they can make your head spin!) but with some knowledge and careful reading, you can understand your tax obligations and file with confidence.