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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3219
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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My daughter is a PhD student and receives a stipend of about

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My daughter is a PhD student and receives a stipend of about $27,000 annually, in addition to a full scholorship to complete her studies. Through 2011 a portion of that stipend was considered taxable income and she received a W-2 from the university. That amount was reported on her 1040 as income. However in 2012 they did not issue any W-2, claiming something about the funding no longer required it and her stipend was tax free. So we have 2 questions: Should we be reporting any portion of her stipend to the IRS for federal income tax purposes? And number 2, she funds her Roth IRA every year, from savings if necessary, and paid in $5000 in 2012. If the income she received from the University in 2012 was in fact tax free, and she reports no "earned compensation," can she still fund her Roth? She did have about $4500 in dividends and cap gains for the year.

bkb1956 :

Thank you for allowing me to be of service to you regarding your tax question. If the university did not issue a W-2 to your daughter (for whatever reason), there is nothing to report. Dividends and capital gains are not considered as "earned income" required for Roth IRA contributions.

Customer:

So does that mean the 2012 ROTH contribution will not be allowed and if so, what should she do about it? Can she simply report "other income" on her 1040 and list $5000 which, in fact, she received?

bkb1956 :

Please see the following for additional information regarding stipends:

bkb1956 :

A scholarship/fellowship payment received by a candidate for a degree is generally not taxable income to the student if it is used for "qualified expenses." Qualified expenses are defined by the IRS and include tuition and required fees, and/or expenses for books, supplies and equipment required of all students in the course. These payments do not need to be reported to the IRS by the student or the University.


A scholarship/fellowship used for expenses other than qualified expenses is taxable income. Taxable scholarships are generally referred to as stipends, and are payments for which no services are rendered or required. Examples of stipends are payments that can be used for living and incidental expenses such as room and board, travel, non-required books and personal computers, etc.


Stipends are considered taxable income to students. However, based on IRS rules, the University does not withhold tax on stipends or provide students with tax Form 1099. Students are responsible for reporting taxable stipend payments along with any other payments they receive and remitting any tax due with their personal income tax return. (Foreign students who are non-resident aliens will receive a Form 1042-S reporting taxable stipends, and U.S. withholding tax may apply.)


Students should maintain a record of the stipend payments they have received during the calendar year (January 1 to December 31), remembering to include payments they received by check via Accounts Payable. The total annual payments received can also be obtained from the departmental award letter(s). However, since these award letters are generally based on academic year as opposed to calendar, you may need to reference the award letters for multiple academic years to ascertain the total calendar year amount.

Customer:

OK! I think we can go from here. Thanks so much.

bkb1956 :

If her stipend is not considered as "earned" income, your daughter cannot list any amount as other income and does not qualify to make a contribution to her Roth IRA.

bkb1956 :

It's been my pleasure to assist you this morning. Please take a moment to rate my answer as that is an important part of being an expert on JustAnswer, and I strive for excellence. Best regards.

Customer:

OK, excellence is acknowledged and I shall report accordingly

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