Graduate Student Stipends

[PaulF]

I have husband and wife graduate student clients in Tennessee working for Vanderbilt University. They received W-2 income of $14,000 each, but the husband volunteered that they also each receive another $13,000 of stipends that is not reported. Should the additional $26,000 be reported as miscellaneous income on line 21 of the 1040? I think it should, but I am curious to hear how others in this situation have handled the stipends.

[Corduroy Frog]

I would not list it

Paul, I wouldn't list any additional stipends because many of them are tax-free. If your customer knows what they are for, and you KNOW they are taxable, they should be claimed somewhere as income.

If the stipends are taxable, and issued in association with their work, they should be included as wages. (In some cases, this may actually help rather than hurt the client). If they are taxable and NOT in association with their work, line 21 is probably the best option.

However, there is probably a "rest of the story" not mentioned in your post. If they are working at Vanderbilt in conjunction with getting some sort of degree or an internship, there are probably educational costs in the form of tuition and fees. The stuff that usually goes on a 1098-T. The first treatment of a scholarship or taxable stipend should usually be applied to these costs before any income is claimed. This should normally occur until the tuition and fees cost is exhausted, and then you are forced to deal with the amount remaining, if any.

In some cases, where the credit is for actual work, the amount can be listed as compensation on line 7, thus leaving the tuition/fees to qualify for the credit. The compensation so listed is not taxable under SS/Medicare. In many cases, the compensation is taxed only at 10% or 15%, whereas the tuition can qualify for a 20% credit, thus leaving the taxpayer ahead in the calculation.

[PaulF]

Thank you for your reply. After reading your post, I decided not to list the stipends as additional income.

[Burke]

I would not make such a decision without first having the client contact the school for an explanation of exactly what it was for. I have had graduate students receive these where they were taxable.

[PaulF]

The client told me the stipends were paid to help out with living expenses, not as compensation for the services they were providing the university. So, I am going to not report the income. The university is getting their teaching services for a bargain, compared to what they have to pay for a professor.