03 January 2009

Taxes on Fellowships and Grants

It's that time of year again when I've started thinking about taxes. I try to get them done early, because I really don't want to spend the day before my birthday panicking. I guess it could be worse. I could have been born on 15 April.

This year I don't have much to report, although I'm not sure how this all works being divorced. I'm filing singly - particularly since I've been supporting myself on a Fulbright and TA position since January 2007. The NSF only covered research related expenses like equipment, field assistance, and a truck rental.

From everything I can tell, so far, my dissertation NSF - because it went towards paying for research-education expenses - doesn't get taxed. I am more than a little paranoid about NSF money due to a run in I had with the IRS back in the 1990s over a NSF REU (research experience for undergraduates) grant. I worked at an oceanography lab that paid me the money directly without taking out anything for the state and federal governments. I didn't realize that I had to do this myself. A couple of years later the IRS caught up with me for not handing over the government's share of $3000 per summer for 2 summers. My mom and I went to a tax accountant and I ended up paying a little, but not the $1000 per summer they wanted. Being audited is no fun.

I have paid taxes on my student Fulbright. It is a fellowship, not a grant. The thing that pissed me off the most about the Fulbright is that you as the recipient must withhold the money to pay the government. The US Dept. of State doesn't do this for Fulbright recipients. It doesn't make any sense as they do withhold for other Dept. of State employees. How much harder would it be to do so for fellowship recipients? I ended up setting aside 25% of the fellowship monies as back-up just in case although I didn't pay them all 25%.

The IRS does have information posted on their website about taxing grants and fellowships. I've posted some links below that my friend James sent me last year while I was in the field.

1) Grants to individuals

This page seems to indicate that the NSF grant was 1) awarded "on an objective and nondiscriminatory basis" and 2c) "is to achieve a specific objective, produce a report or similar product, or improve or enhance a literary, artistic, musical, scientific, teaching, or similar capacity, skill, or talent of the grantee." Therefore, no taxes are owed on a DDIG (doctoral dissertation improvement grant).

2) Scholarships, Fellowships, Grants, and Tuition Reductions

This page gives a general breakdown on education fellowships and scholarships. The gist is these sources can be taxed depending on how you use the money. Room, board and travel are taxable while tuition, fees, books, supplies, and equipment are not.

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