For US Citizens, Permanent Residents & Resident Aliens for US Tax Purposes
Stipends reported to you on a stipend letter are treated for tax purposes as taxable scholarships. Per IRS Publication 970, taxable scholarships and fellowships should be reported on the tax return as follows:
- Form 1040EZ – Line 1; also enter “SCH” and the taxable amount in the space to the left of line 1
- Form 1040A and Form 1040 – Line 7; also enter “SCH” and the taxable amount in the space to the left of line 7
When using tax software to prepare your tax return, be sure to classify the income as taxable scholarship income. Other terminology that software providers may use to describe this income includes nonqualified scholarships, taxable fellowships, nonqualified fellowships, taxable grant income, and other similar phrases. This type of income is often difficult to find in the software because it is uncommon. Do not instruct the software that your stipend is substitute W-2 or substitute 1099 income. Those types of income are taxed differently than taxable scholarship income and could cost you much more in tax.
When engaging a professional tax preparer to prepare your return, be sure s/he is aware that this is taxable scholarship income. Tax preparers are just like everyone else; they can’t know everything, and there is a good chance they have never seen this type of income either.
For Nonresident Aliens For US Tax Purposes
Stipends reported to you on a Form 1042-S with income code 16 in box 1 are taxable scholarships. Gross income from box 1 should be reported on Form 1040-NR line 12. Federal tax withheld from box 7 should be reported on Form 1040-NR line 62d.