Tax Status of Graduate Student Awards
|POLICY TITLE:||Tax Status of Graduate Student Awards at Carnegie Mellon University|
DATE OF ISSUANCE:
|This policy appears in the Graduate Student Handbook.|
|ACCOUNTABLE DEPARTMENT/UNIT:||Vice President for Finance and Chief Financial Officer. Questions on policy content should be directed to the Office of the Controller.|
|ABSTRACT:||Explains the three types of income taxes affecting graduate students at Carnegie Mellon and the requirements for student compliance with the tax code.|
Three types of income taxes affect graduate students at Carnegie Mellon. To be in compliance with the tax code, students must understand their tax status.
U.S. Income and Tax Status for U.S. Citizens and Permanent Residents
Graduate students receiving financial awards that are scholarships, fellowships, teaching assistantships, research assistantships and other analogous stipends are required to pay U.S. income tax on these funds as follows:
- If a student is not a degree candidate, all award funds are taxable.
- If a student is a degree candidate, the amount of any award used for tuition, fees and required books, supplies and equipment is not taxable. The amount used for other expenses such as room, board and travel is taxable.
- The part of any award that represents payment for the student's services such as teaching, research or other service (e.g., writing, administrative assistance, etc.) is taxable.
In computing student taxes for W-2s, the university can determine centrally the part of a student's non-taxable income that covers tuition and fees, since the university establishes these costs. But the portion of stipends required to cover other expenses varies among departments and/or individual students. If a department submits a standard figure that represents known, fixed, documentable fees for required non-tuition educational expenses, these fees may be excluded from the taxable income a priori. In all other cases, graduate students must establish how much of their award is used for required educational expenses (i.e., books, supplies and equipment) and how much for a living stipend.
As a matter of standard university practice, the university will exclude the amount of the student's award that is used for tuition and fees from taxable income; that part will not show on a Form W-2.
The university will exclude an amount for other educational expenses in those cases where departments have identified known, documentable, excludable expenses. Those identified amounts should be included with the tuition amounts and so entered in HREM under a tax type 01. In all other cases, the balance of the award should be entered as taxable in HREM so the appropriate taxes will be withheld.
Should a student have a question about his/her Federal Income Tax status, please refer to IRS publications 520, "Scholarships and Fellowships," and pages 12-18 of Publication 901, "U.S. Tax Treaties." Information regarding these publications may be found at www.irs.gov.
Foreign Students and Permanent Residents
Note: These rules do not necessarily apply to foreign students.
For tax purposes, citizens and permanent residents are considered residents but foreign students may be residents or non-residents. Information on residency status can be found in IRS publication 519. Some foreign students may benefit from specific tax treaties between the U.S. and their countries. Information on tax treaties is contained in IRS publication 901. The Office of International Education (OIE) sponsors seminars every spring on these tax issues. For more information on these seminars contact OIE; for more information on specific taxation questions, visit www.irs.gov.
Pennsylvania Individual Income Tax
According to the regulations of the Pennsylvania Individual Income Tax Act, fellowship awards and stipends are taxable compensation for service if the recipient is required to apply his skill and training to advance research, creative work, or some other project or activity, unless he or she can show that the recipient is a candidate for a degree and the same activities are required of all degree candidates for that degree as a condition to receiving the degree.
As long as the services rendered by a graduate student are a standard part of the degree requirements for students in a program, no tax must be paid or withheld. At Carnegie Mellon, where graduate students are required to render services, those requirements are generally a standard part of the degree program for all students similarly situated; as long as departments document this fact, the university will not withhold Pennsylvania Individual Income Tax from monthly checks.
Should a graduate student have a problem with the Pennsylvania Department of Revenue seeking to tax some or all of their award, Payroll Services will provide the student with a letter to explain the situation. The letter should be sent to the Pennsylvania Department of Revenue. Further tax information from Pennsylvania can be obtained by visiting the Pennsylvania Department of Revenue website.
City of Pittsburgh and School District of Pittsburgh
Under regulations issued by the City of Pittsburgh that cover both entities, payments made to "a ... post graduate student who has not yet achieved the degree they are seeking, for services rendered in connection with their educational advancement and as part of the program for obtaining this degree, are not subject to the Earned Income Tax when such payments are in the nature of a fellowship, grant or stipend." Regulation 202 (m), Chapters 245 and 246, Pittsburgh Code of Ordinances, Revised: December, 1986. Based on this regulation, Carnegie Mellon does not withhold earned income tax from graduate students who are living within the city, town, municipality, borough, township or school district.
Should the city notify a student that they should be paying the city and school district earned income tax, Payroll Services will issue a letter explaining the situation to the city and the reason we believe the stipend to be non-taxable by the city and school district. For further information, contact the City of Pittsburgh by visiting www.city.pittsburgh.pa.us.