Stipends For University Of Michigan Students: Are They Taxable?

The University of Michigan provides a wealth of resources to help students navigate their finances. All income that doesn’t go directly towards tuition, fees, and benefits is subject to taxation and must be reported on federal and Michigan state tax forms. This includes stipends, debit funds, and any other funds received from the university that aren't considered qualified scholarships. So, are student stipends taxable? The short answer is yes, student stipends are taxable unless they are used for qualified expenses such as tuition and required fees.

Stipends unrelated to employment don't have taxes withheld

Stipends are a popular tool for businesses to offer flexible compensation beyond standard wages and bonuses. They are a set amount of money given to employees for specific expenses, such as technology, wellness, or education. Stipends are different from salaries as they are often provided to cover particular costs that enhance an employee’s work experience or personal well-being.

The University of Michigan states that for stipends unrelated to employment, taxes aren't withheld in most cases. This places the responsibility on the student to report and pay taxes. This is in contrast to university employment, where taxes are withheld and paid to the IRS on the student's behalf.

The Internal Revenue Service (IRS) provides clear guidelines on how employee stipends should be treated for tax purposes. The key to determining if a stipend is taxable lies in whether the stipend is provided for personal or business-related expenses. Generally, if the stipend is given for personal use, it will be considered taxable income and must be reported as compensation. However, if it’s for work-related expenses and meets certain criteria, it may be exempt from taxation.

For example, common taxable stipends include those for non-job-related expenses, such as personal wellness programs, and cash stipends that employees can use freely without restriction. On the other hand, common non-taxable stipends include work-related education stipends that fall under the IRS’s Education Assistance Program, and technology stipends used for job-specific equipment, provided they meet accountable plan rules.

It is important to note that stipend tax rules vary depending on the state and the type of stipend. For instance, commuter or education benefits may be tax-free up to the IRS-designated annual contribution limits. Therefore, it is crucial to consult the IRS guidelines and a tax professional to ensure compliance with tax regulations.

Students are responsible for reporting and paying taxes on stipends

Students at the University of Michigan are responsible for reporting and paying taxes on stipends. This is because, in most cases, taxes are not withheld from stipends. This applies to stipend fellowships, which are subject to taxation unless they are "qualified scholarships". A "qualified scholarship" is one that goes directly towards tuition, fees, and benefits.

If you are receiving a stipend and are not having tax withheld from it, it is likely that you are responsible for paying quarterly estimated tax. You can check this by reading about quarterly taxes or by contacting the Payroll Office by sending an email to payroll@umich.edu, or by calling one of the phone numbers provided on the website.

US Citizens and Resident Aliens will not receive a year-end form with reporting information about their fellowship. It is the responsibility of the student to report their stipend fellowship accurately. If you are a nonresident alien, you will receive a Form 1042S at the calendar year-end for the amount you received in fellowship or scholarship funds.

There are seminars held during the year to help students report fellowship funds when filing their tax forms.

Non-resident aliens receive a Form 1042S for fellowship/scholarship funds

The University of Michigan provides a wealth of resources to support students with their finances. Scholarship and fellowship funds are taxable payments and have unique taxation rules that depend on the use of the funds and the recipient's residency status.

Non-resident aliens, in general, are subject to U.S. reporting and withholding on taxable payments. The University of Michigan requires withholding and reporting on fellowship or scholarship funds for non-resident aliens. The university will issue a Form 1042-S to non-resident aliens at the calendar year-end, stating the amount received in fellowship or scholarship funds.

The withholding tax rate is typically 30% for non-resident aliens. However, if the non-resident alien is a student, researcher, or grantee with an "F," "J," "M," or "Q" visa, the rate may be reduced to 14%. This lower rate applies to payments for tuition, fees, course-related books, and other required expenses. Any payments for room and board, travel, or other non-essential expenses are subject to the 14% withholding rate for these visa holders.

It is important to note that if a non-resident alien was a tax resident of a country with an income tax treaty with the United States before arriving, they may be exempt from tax on their scholarship, fellowship, or grant under that treaty. Additionally, if the grant is from foreign sources, no withholding or reporting is required.

US citizens/resident aliens don't receive a year-end form for fellowships

If you are a US citizen or resident alien, you will not receive a year-end form with reporting information about your fellowship. If you require documentation, you may request a letter from the Payroll Tax Section that states the amount of your fellowship. To receive a letter, send an email with your name, UMID, and address to khassan.umich.edu.

This is because, in general, US-sourced taxable scholarships, fellowships, and grants that do not represent compensation for services are not subject to withholding when paid to US citizens and resident aliens. However, they are subject to withholding when paid to nonresident aliens.

Income earned in Michigan is subject to Michigan individual income tax

The University of Michigan provides a wealth of resources to support students with their finances. The Office of Financial Aid (OFA) establishes annual standard student budgets that define the cost of attendance for graduate students, including tuition, housing, living expenses, and other costs. These budget estimates are updated yearly. The OFA also administers a range of financial aid programs, including grants, loans, child care subsidies, and work-study employment—all primarily based on financial need.

The Finance and Fellowships Office is another resource for students, offering support with Rackham fellowship competitions, and administering grants for conference travel, research, and emergencies.

For specific situations, it is recommended that students consult a tax professional.

Frequently asked questions