TL;DR: Fellowship and stipend income used for living expenses is taxable federal income even if you never get a W-2 or have anything withheld. Money used for tuition, required fees, and required course supplies is generally excludable. With no withholding, you pay the tax yourself; see the quarterly estimated taxes article.
One of the most common surprises for new grad students: your stipend is almost certainly taxable, even if nobody withheld a dollar and you never received a W-2. The money landed in your account, the university didn't mention taxes, and then in February you learn that the IRS considers most of it income.
This guide explains why, which parts of your funding are and aren't taxed, how it's reported, and what to do about it. It focuses on U.S. citizens and tax residents. If you're an international student, start with our guide to international grad students and U.S. taxes, because nonresident rules differ. This article is general information, not tax advice.
The basic rule
The default is that money paid to you is income. The main exception, in the tax code's scholarship and fellowship rules (Section 117), is that a degree candidate can exclude amounts spent on:
- Tuition and required fees at the school
- Books, supplies, and equipment required for your courses
Everything else is generally taxable:
- Money for living expenses, like rent, food, and travel
- Any payment for services you perform, such as teaching or research, no matter what the award letter calls it
That last point trips people up. Your award letter might say "fellowship," "scholarship," or "grant." What matters to the IRS is what the money is actually for. If you're required to teach sections or do research as a condition of receiving it, it's compensation.
Fellowship, assistantship, or both?
Most funded grad students have one of these setups, and they're treated differently:
| Type of support | Typical tax treatment | Usually reported on |
|---|---|---|
| Tuition and required fees paid or waived | Generally not taxable for a degree candidate | Not reported as income |
| Fellowship stipend (no services required) | Taxable, generally no withholding | Schedule 1 of Form 1040 (line 8r) |
| TA/RA/GA assistantship pay | Taxable wages, with withholding | W-2 |
| Summer fellowship or research funding | Depends on whether services are required | W-2 or your own reporting |
Many students have a mix. A first-year might be on a fellowship in the fall (no W-2) and switch to a TA appointment in the spring (W-2). If you're unsure how a payment is classified, ask your department administrator or graduate school. It's a routine question, and they'll know.
Why there's often no W-2
For U.S. citizens and residents on a true fellowship, the university generally doesn't withhold taxes and doesn't issue a W-2. That doesn't mean it's tax-free. It means you are responsible for reporting it. Many universities say this explicitly on their graduate school websites: fellowship income is taxable, reporting is the student's responsibility, and keeping records is up to you.
Assistantship pay is different. It's wages, taxes are usually withheld, and the university reports it on a W-2. You can usually confirm what's being withheld by checking a recent pay stub.
How to report fellowship income
Taxable fellowship income that wasn't reported on a W-2 goes on Schedule 1 of Form 1040, on the line for scholarship and fellowship grants not reported on a W-2. Tax software will ask about this if you say you received a scholarship or fellowship.
To figure out the taxable amount, start with the total you received and subtract the qualified expenses you can exclude:
- Tuition and required fees you paid (or that were paid on your behalf from the award)
- Required books, supplies, and equipment
The 1098-T your university sends is a useful reference, but don't treat it as the answer. It reflects how the billing system recorded charges and aid, and it often doesn't distinguish neatly between the tax-free and taxable parts. Cross-check it against your award letters and student account statements.
Worked example
Here's an illustration (Estimated, not tax advice, and ignoring credits and state tax):
- Fellowship total: $40,000
- Tuition and required fees paid directly to the school: $15,000 (excluded)
- Taxable stipend: $25,000
- Standard deduction (2026, single, Official: IRS): $16,100
- Taxable income: $8,900
- Federal income tax: about $890 (10% bracket)
Two takeaways. First, on a stipend of this size your federal tax is real but modest. Second, if nothing was withheld, that $890 comes due all at once unless you pay along the way, which is the "April surprise" we cover in quarterly estimated taxes.
Is it subject to Social Security and Medicare tax?
Generally, a fellowship that isn't payment for services is not subject to self-employment tax, so you owe income tax on it but not the extra 15.3%. That's a real difference from freelance income.
For assistantship wages, students who are enrolled and regularly attending classes are often covered by the student FICA exception when working for the school they attend, so Social Security and Medicare taxes typically aren't withheld from that pay. Check your pay stub to see whether they are. If you also freelance, tutor independently, or do contract work on the side, that income can be subject to self-employment tax even though your stipend isn't.
Timing: when the income counts
Income is generally taxed in the calendar year you receive it, not the academic year. A first-year student who starts in September has taxable income from September through December in year one, and January through May in year two. Even if you get no forms in the first year, the fall payments belong on that year's return.
Withholding and what to do about it
If you're a U.S. tax resident on a fellowship with no withholding, you have three options:
- Make quarterly estimated payments during the year.
- Increase withholding on a W-2 job, such as a TA appointment or summer job, so it covers your fellowship income too. Withholding is generally treated as paid evenly throughout the year, which can help you avoid penalties.
- Set money aside and pay when you file. This works only if you have the cash, and you may still owe a small underpayment penalty.
Also, if you owe less than $1,000 after withholding and credits, penalties generally don't apply.
State taxes
Most states tax fellowship and stipend income too, and the rules vary. Many universities point out that their state treats fellowship stipends as taxable. Some states withhold from fellowship payments, and some don't. See state taxes when you move for grad school for the details.
Retirement savings
There's a bright side: taxable fellowship and stipend income can generally count as compensation for IRA contribution purposes, so funded grad students aren't locked out of retirement accounts. Our article on retirement savings in grad school explains the rules and the tradeoffs.
Common mistakes
- Assuming no W-2 means no tax. It doesn't. The income is still reportable.
- Treating the entire award as taxable. Qualified tuition and required course costs can generally be excluded.
- Excluding living expenses. Rent, food, and travel amounts from a fellowship are taxable.
- Relying on the award letter's label. Payment for required services is compensation regardless of what it's called.
- Ignoring the 1098-T entirely, or trusting it blindly. Use it as a cross-check, not the final answer.
- Forgetting a state return. See the state guide above.
Where to look next
The IRS explains this in Publication 970, Tax Benefits for Education, and in the instructions for Form 1040. Your graduate school or payroll office often has a tax page or FAQ specific to your university's payments. For step-by-step filing help, see our guide to filing your taxes as a grad student.
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, your university's graduate school, or a qualified tax professional.