Obtaining a master's degree or Ph.D. is expensive. You must pay tuition and fees and buy books while, at the same time, delaying or interrupting opportunities to earn a full-time salary. University stipends can provide a significant source of financial support. Whether the stipends count as income for tax purposes depends upon the student's status, use of proceeds and conditions under which stipends are given.
Your stipend automatically counts as income if you are not enrolled in a degree program in a nationally accredited college, university or secondary school. It also counts as income if the institution's primary function is something other than providing education and if the institution lacks a regular student body on its physical campus. Otherwise, you may not need to count your stipend as gross income.
You must count as income any part of your stipend used for non-course-related expenses. For example, stipend monies used for tuition, fees and books may not necessarily be included in your income, but monies used for incidentals such as room and board, laptops and research are considered income.
If some of your stipend represents payment for services, such as teaching or research, it counts as income even if you used the stipend to pay your tuition. This is true except for recipients of the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. Members of those programs do not count stipends as income if they included teaching or research requirements.
Credits and Deductions
Graduate students who have stipends or other forms of scholarships or fellowships may be eligible for other credits or deductions. One is the Lifetime Learning Credit, which provides up to $2,000 credit per return. You can claim this credit if your modified adjusted gross income is less than $62,000, or $124,000 if you are married and file jointly. The credit is available even if you are not enrolled in a degree program and for an unlimited number of years. The other is the American Opportunity Credit, which provides up to $2,500 per return. This credit is available only for four years and only to those who did not complete their bachelor's before 2012. This credit also requires that you be enrolled at least half-time and that your modified adjusted gross income be less than $90,000, or $180,000 if you are married and file jointly.