Tax Information for Non-service Fellowships

The following information is for graduate scholars whose non-service payments fall within the following classes: 9560, 9561, 9562, 9564, 9565, 9566, 9567, 9568, 9569, 9582, and 9583. These non-service payments made to recipients of non-service graduate fellowships from the University of Minnesota are amounts paid that support you in the course of your study or research. Although they are taxable and reportable to the IRS, they are not subject to Form W-2 reporting.

Also note that the University will not deduct the following charges from your fellowship payments: optional retirement plan, parking fees/metropass, recreational sports memberships, savings bond purchases, credit union payments, 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.

Tax Treatment

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 the IRS with respect to such grants. 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, Tax Benefits for Education (pdf).

Income Tax Withholding Option

The University of Minnesota provides non-service fellowship recipients the option of having income tax withheld automatically from fellowship payments throughout the year. The amount of required income tax withholding, if any, will depend upon your personal income tax situation.

Non-qualified fellowships first became subject to income tax withholding after the Tax Reform Act of 1986. Since that time, most graduate fellows have preferred that the University withhold and remit income tax throughout the year. Income tax withholding throughout the year reduces the risk of underpayment penalties and relieves the cash flow difficulty of coming up with a single tax payment by April 15, when personal income tax returns are due to the federal government.

How to Request Income Tax Withholding

Complete the Graduate Fellowship Income Tax Withholding Request form (pdf). If you wish to have income tax withheld from your graduate fellowship payment, please indicate how much you wish to have withheld during each two-week payment period during the term of your fellowship.

Tax Rate Tables

The federal and state tax rate tables are provided to assist you in determining what may be the appropriate amount of income tax withholding. These tables indicate the tax rates applied at various levels of taxable income. Keep in mind that your personal tax situation will affect the final amount of your overall personal income tax liability. The University of Minnesota does not give personal income tax advice. You may wish to consult your personal tax advisor on this matter.

Federal Tax Rate Table - IRS Publication 505 (pdf)
Minnesota State Tax Rate Table (pdf)

Timing

Please submit all withholding requests to Payroll Services, 545 WBOB, Attention W-4 Desk. The form will be processed for the next available payment. Contact your department for cut-off dates.

Year-end Reporting Requirements

What's reported on Form W-2

If you elect to have income tax withheld from your fellowship payment, you will receive a Form W-2 at the end of the calendar year reporting the total income taxes withheld. The Form W-2 will report no taxable wages, only income tax withheld. The Form W-2 will provide the IRS with satisfactory verification of actual income tax payments on your behalf and may be attached to your personal income tax return.

Determining Total Fellowship Amount

The taxable fellowship amount you have been paid in the calendar year can be found in the Earnings section on your pay statements for the calendar year. The year-to-date (YTD) earnings will show on your most current pay statement only.  You should add the fellowship earnings amount paid each payday in the year to determine your total fellowship amount, or your department can provide you with that total. Your department can also provide you with information concerning any other taxable payments made on your behalf, such as 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 reflects all the taxable wages and any taxes withheld from your service related appointment, plus any taxes you had withheld from your fellowship appointment. Your service related appointment is always paid separately from your fellowship appointment, so the total taxes withheld from both appointments are combined on your Form W-2. You will not receive separate Forms W-2 for each appointment.

How to report Taxable Fellowships to the 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, Tax Benefits for Education (pdf).

Whom to Call for Information

For more information, contact the Human Resources Call Center at 612-625-2016