The following information is from the UAB website: (http://financialaffairs.uab.edu/content.asp?id=343657).
Types of Financial Aid:
• Scholarships are generally given to graduate students to cover tuition and fees.
• If there is no requirement for service to the university or a third party, a scholarship is not subject to state, local, or federal taxes.
• Most scholarships are applied directly to student fees.
• No W‐2 form is issued by UAB.
• Fellowships typically provide a stipend to defray living expenses, tuition and fees.
• If no service is required to receive the fellowship, it is exempt from state and local taxes.
• Any portion of a fellowship in excess of tuition, fees, and required books and equipment is subject to federal income tax.
• UAB does not withhold taxes from fellowships or issue W‐2 forms.
• Students are advised to pay quarterly estimated federal taxes.
* Most 1st year GBS students are funded by Graduate School Fellowships or UAB Comprehensive Minority Faculty and Student Fellowships
• Assistantships are compensation given for work performed.
• The most common forms of assistantships are teaching and research assistantships.
• These awards are not exempt from taxes.
• UAB will deduct taxes from checks and issue a W‐2 form at the end of the year.
*Graduate students funded by grants and sources other than individual fellowships and training grants are considered to receive assistantships
What about FICA?
• FICA is the social security tax.
• Fellowships are exempt from FICA.
• Graduate students receiving financial aid are exempt from FICA if they are enrolled in at least 3 credit hours of classes each quarter the exemption is claimed.
• You must enroll on time to be eligible.
• There are no limits on the number of hours worked.
What is the Lifetime Learning Tax Credit?
The lifetime learning tax credit benefits graduate students.
• After June 30, 1998, anyone paying tuition will be eligible for a tax credit.
• Students will be able to take a tax credit of up to $1,000 on 1998 tax returns for tuition payments made in 1998. The tax credit is 20% of up to $5,000 in 1998 and 1999. It increases to 20% of up to $10,000 in 2000.
Interest on Student Loans
Beginning in 1998, interest paid on student loans will be tax deductible for up to 5 years of interest payments. There are restrictions. The more money you make, the less interest you can deduct. Students will have to itemize deductions to take advantage of this. Lenders will be required to report to students and the IRS if the interest on a student loan exceeds $600 per year.
Some Common Fellowship Programs
• Graduate School Fellowships
• UAB Comprehensive Minority Faculty and Student Development Fellowships
• NSF Fellowships
• NIH Fellowships
Frequently Asked Questions:
1. How do I know what kind of financial aid I have?
Answer: You should receive a letter from your department or program director describing the nature of the award. Any time the award changes, the letter should be reissued. If you don't have a letter, ask for one.
2. I am paid on my advisor's research grant, but I am just working on my thesis. Why are taxes being deducted?
Answer: You have an assistantship. A research grant is awarded to the university for the purpose of conducting research, not training. Your advisor cannot give you fellowship support from a research grant.
3. If I have a fellowship, how do I pay estimated taxes?
Answer: Estimated taxes are due four times per year, starting on April 15th. You can get the forms, 1297 Publ 505 Tax Withholding and Estimated Tax (560K, Adobe PDF) and 1196 Publ 520 Scholarships and Fellowships (75K, Adobe PDF), from the IRS web site‐‐ http://www.irs.ustreas.gov, as linked above‐‐or from the Graduate School Office, HUC 511.
4. I have a fellowship, but I supplement it by teaching a class. Will any taxes be deducted from my check?
Answer: Taxes will be deducted only from the portion of your funding that is a teaching assistantship. Because this is compensation, it is fully taxable.
5. I am on an NIH Training Grant. Is this a fellowship or an assistantship?
Answer: NIH Training Grants (e.g., T32, T35, T90) are treated like fellowships.