Taxable Graduate Fellowships
This communication is directed toward graduate scholars whose non-service payments fall within the following classes: 9560, 9561, 9562, 9564, 9565, 9566, 9567, 9568, 9569, 9582, 9583, and 9584. These non-service payments made to recipients of non-service graduate fellowship payments from the University of Minnesota are amounts paid that support you in the course of your study or research.
Non-qualified fellowships first became subject to income tax after the Tax Reform Act of 1986. The IRS considers "non-qualified" fellowship amounts to be taxable income, reportable by you, the recipient, on your personal tax return. According to IRS notice 87-31, neither the grantor nor the educational organization is required under section 6041 to file a return of information (W-2 or 1099-M) to IRS with respect to such grant.
It is the responsibility of you, the recipient, to report taxable non-qualified fellowship payments to IRS. For additional information on the income taxability of non-qualified fellowships, please see IRS Publication 970 (pdf), Tax Benefits for Education.
Paying Federal and State Taxes
While the University of Minnesota cannot assist or provide advice in personal tax matters, non-service fellowship recipients have the option of filing estimated taxes with the Internal Revenue Service (IRS) and with the Minnesota Department of Revenue. The amount of required federal or state income tax estimated payments, if any, will depend upon your personal income tax situation.
If you are also employed by the University of Minnesota, with paid salary through that other appointment, you can avoid filing estimated taxes by having more taxes withheld from you salary (wages). You can submit a W-4 through MyU to request additional withholding from your wages. This step can also be completed for Minnesota taxes by filing a Form W-4MN.
The IRS Estimated Taxes site has information on how to figure your estimated tax payment. You can use the worksheet in Form 1040-ES (pdf) to calculate your payment(s). You should complete this worksheet to assist you in also making Minnesota estimated payments.
How to File Federal Estimated Income Tax Withholding
The Internal Revenue Service has information and help on their Estimated Taxes website. They have information on such things as how to pay estimated taxes, how to figure Estimated Tax, and when to pay estimated taxes. You can pay estimated taxes online by using any of the following methods:
- IRS Direct Pay – For the individual taxpayer, this is a free, secure payment directly from your checking or savings account. No registration or enrollment is necessary to make payments with IRS Direct Pay.
- EFTPS (Electronic Federal Tax Payment System) – Enrollment is required to use the EFTPS system, but this is a free, secure, and convenient method of paying taxes.
- Pay by Card – This is also a safe and secure method of paying estimated taxes. The payment is made through a service provider. There are processing fees charged by the service provider, but no part of the fee goes to the IRS.
If you choose to pay estimated taxes, the IRS site noted above has information about when to pay estimated tax. See IRS Publ. 505 for more information. Publication 505 also has other information, tax tables, and worksheets to help you determine if you should pay estimated tax and how much you should pay.
How to File Minnesota Estimated Income Tax Withholding
The Minnesota Department of Revenue has information and help on their Estimated Taxes website. They have information on such things as how to pay estimated taxes, how to figure Estimated Tax, and when to pay estimated taxes. You can pay estimated taxes online by using any of the following methods:
- Using e-Services Payment System
- By debit or credit card
- Pay by Check
Year-end Reporting Requirements
What's Reported by the University of Minnesota
According to IRS notice 87-31, neither the grantor nor the educational organization is required under section 6041 to file a return of information (W-2 or 1099-M) to IRS with respect to such grant. The University of Minnesota will not report your fellowship to IRS. See IRS Publication 970 (pdf) for more information.
Determining Total Fellowship Amount
The total taxable fellowship amount you have been paid in the calendar year can be found on your final pay statement of the calendar year. See Fellowship/Scholarship YTD Earnings in the Hours and Earnings section of your pay statement. You can view and print your pay statement through MyU under My Pay. Your department can also provide you with information concerning any other taxable payments made on your behalf, for example the value of any health insurance paid by the department on your behalf as a fellow.
Form W-2 Reporting If More Than One Appointment Is Held During the Year
If you also held another appointment for services during the calendar year, such as an assistantship, your Form W-2 will reflect all the taxable wages and any taxes withheld from your service related appointment. Your fellowship payment will not be reported on either the form W-2 or form 1099-M. See above on how to determine your total fellowship amount.
How to Report Taxable Fellowships to IRS at Year-End
For information on the income taxability of non-qualified fellowships, and how to report these payments on your personal tax return, please see IRS Publication 970 (pdf), Tax Benefits for Education.
Additional Information on Fellowship Payment Processing
Please be apprised that as a non-employee you are ineligible for payroll deduction of the following charges: optional retirement plan, parking fees/metro pass, recreational sports center memberships, community campaign, and other miscellaneous deductions. You will be responsible for making any such payments directly to the parties to whom the payments are owed.