TL;DR: Work out whether your money is wages (a W-2) or fellowship income, exclude only tuition, required fees, and required course supplies, subtract the standard deduction ($16,100 for a single filer in 2026), and file by mid-April. Most funded grad students owe little federal tax, but income with nothing withheld means you pay it yourself.
Most grad students never get taught how to file taxes on a stipend. Your income doesn't look like a normal paycheck, your university may send forms that don't match, and the advice you find online is usually written for undergraduates or full-time employees. This guide walks through a federal return for a U.S. tax resident on a typical funded appointment, from sorting out your income to hitting "submit."
It covers the 2026 tax year, which you'll file in early 2027. If you're an international student, read our guide to international grad students and U.S. taxes first, because nonresident filing follows different rules. This article is general information, not tax advice.
Step 1: Work out what kind of income you have
The single most important question is whether your money is wages or a fellowship/stipend, because the two are reported differently.
- Wages (Form W-2). If you're paid as a teaching assistant, research assistant, or other employee, your university sends a W-2. Taxes were probably withheld each paycheck. The amount in Box 1 goes on your return like any other job.
- Fellowship or stipend income (often no W-2). If you're on a fellowship, training grant, or similar award where you're not being paid for services, there's usually no W-2 and often no tax withheld. The taxable part is still income, and it's your job to report it.
- A mix of both. This is common. You might have a TA appointment during the school year and a fellowship over the summer.
If you're not sure which you have, check your appointment letter or ask the department administrator how the payments are classified. It's a routine question.
Step 2: Figure out which part of a fellowship is taxable
For a degree candidate, the general rule is that fellowship money spent on tuition, required fees, and required books, supplies, and equipment isn't taxable. Money that goes toward living costs like rent, food, and travel is taxable, and so is any part that's payment for teaching or research services you're required to perform.
Two consequences follow from this:
- If your fellowship pays your tuition directly and also gives you a monthly stipend, the tuition typically isn't income to you, but the stipend usually is.
- If the university reduces or waives your tuition as part of an assistantship, that waiver is generally not taxed for graduate students who teach or do research. The stipend is.
Taxable fellowship income that wasn't reported on a W-2 goes on Schedule 1 of Form 1040 (the line for scholarship and fellowship grants not reported on a W-2). Tax software will ask you about this directly.
A common worry: does that income trigger self-employment tax? Generally, a fellowship that isn't payment for services does not. That's one reason the wage-versus-fellowship distinction matters. If a payment is compensation for services and you're treated as an independent contractor rather than an employee, different rules apply, so ask your payroll office if it's unclear.
Step 3: Gather your forms
Before you start, collect:
- W-2 from your university (and any other employers, including summer jobs)
- Form 1098-T from your university, which reports tuition billed or paid and scholarships or grants received
- 1099-INT / 1099-DIV from any bank or brokerage accounts
- 1098-E if you paid student loan interest
- Records of any estimated tax payments you made (see our guide to quarterly estimated taxes)
- Your stipend or award letters, which help you separate taxable and non-taxable amounts
A word on the 1098-T: treat it as a starting point, not the final answer. The boxes reflect how your university's billing system recorded things, and they often don't line up neatly with what's taxable. Box 5 (scholarships and grants) in particular can include amounts that were partly for living expenses. Use it to cross-check your own records.
Step 4: Add it up and apply the standard deduction
Once you know your taxable income, you subtract a deduction. Nearly all grad students take the standard deduction, which for the 2026 tax year is $16,100 for single filers (Official: IRS). That's the amount of income you effectively don't pay federal income tax on.
Here's an illustrative example (Estimated, for demonstration only, and not accounting for credits or state tax):
- Taxable stipend income: $30,000
- Minus standard deduction: $16,100
- Taxable income: $13,900
- Federal income tax: about $1,420 (10% on the first $12,400, then 12% on the remainder)
The takeaway is that a $30,000 stipend is not taxed like a $30,000 salary from the first dollar, and your effective federal rate is far lower than the headline bracket suggests. Your real number will depend on your exact income, any credits, and your state.
Step 5: Check for credits and deductions that actually apply
This is where grad student advice online goes wrong most often.
- American Opportunity Credit: usually not available. It only covers the first four years of undergraduate education. Grad students generally can't claim it.
- Lifetime Learning Credit: sometimes. It's worth up to $2,000 a year, but only on qualified expenses you paid out of pocket that weren't covered by tax-free assistance. If your tuition is fully funded, there's typically nothing to claim. It phases out at $80,000 to $90,000 of income for single filers (Official: IRS).
- Student loan interest deduction. If you're paying interest on qualified student loans, you can deduct up to $2,500. For 2026 it phases out between $85,000 and $100,000 of income for single filers (Official: IRS), which most grad students are well below.
You can't claim the same expense for two different benefits, and you can't claim education credits on money that was paid with tax-free scholarship funds.
Step 6: Reconcile withholding and estimated payments
Add up federal tax already paid through W-2 withholding and any quarterly estimated payments. If that total is more than your tax, you get a refund. If it's less, you owe the difference.
If you have fellowship income with no withholding, you may owe a lump sum at filing time, and possibly an underpayment penalty if you didn't pay throughout the year. That's the "April surprise" we cover in more detail in our quarterly estimated taxes guide. If you know you'll have unwithheld income next year, setting money aside each month now is the simplest fix.
Step 7: Choose how to file
Your options, roughly from cheapest to most hands-on:
- Free help from a volunteer program. Many universities and communities run free tax preparation for students and lower-income filers. Check your graduate school's website or student services office.
- IRS Free File. Income-limited free software from partner companies, if you qualify.
- Low-cost paid software. Fine for most stipend situations, including one fellowship and one W-2.
- A tax professional. Worth it if you have multiple states, self-employment income, or anything you don't understand.
Whichever route you take, make sure the software asks about fellowship income not reported on a W-2. If it never does, that's a sign it may not handle your situation well.
Step 8: File on time, or extend
The deadline is in mid-April (April 15, 2027 for this tax year). If you're not ready, you can request an extension, but an extension gives you more time to file, not more time to pay. Pay what you estimate you owe by the deadline to avoid penalties.
The mistakes that cost grad students the most
- Assuming no W-2 means no tax. Taxable fellowship income is still income.
- Trusting the 1098-T blindly. Verify it against your award letters.
- Claiming the American Opportunity Credit. It's for undergrads, and claiming it in error can cause problems later.
- Forgetting state returns. Most states have their own income tax. See our guide to state taxes when you move for grad school.
- Skipping the return because your income is low. If tax was withheld from your paychecks, filing is how you get it back.
Where to look next
The IRS explains the education-related rules in Publication 970, Tax Benefits for Education, and the general rules for scholarships and fellowships appear in the instructions for Form 1040. Your university's tax office or payroll department can tell you how your specific payments are classified.
If you're comparing offers at different schools, remember that taxes are only one piece of the picture. Our Compare tool puts stipends next to local rent, utilities, and transit so you can see what each offer is actually worth.
This article is for general information and is not tax, legal, or financial advice. Tax rules change and individual situations vary, so confirm details with the IRS or a qualified tax professional.