Section IV. Item 3,7.
The federal Tax Reform Act of 1986 (Public Law 99-514) has considerable effect on graduate students, for it made significant changes in the way scholarships, fellowships, assistantships, and tuition waivers are considered for income tax purposes. While the following information should not be considered a substitute for professional tax advice, it may serve as a guide to the federal legislation and its impact on graduate students.
Assistantship Stipends
Any financial award for which teaching, research, or other services are required is considered wages. Thus, the semi-monthly stipend received by graduate assistants must be reported as one would report salary, and it is considered taxable income. This is a major change from previous federal law, which allowed assistantship stipends, under certain circumstances, to be tax exempt.
Tuition Waivers
If a waiver of tuition is awarded to a student in return for services performed, then the dollar value of the tuition waiver is considered income by the IRS. Nationally, graduate schools tend to consider the waiver of tuition to be equivalent to a scholarship, an award given to a student in recognition of past performance and future potential as a student, not as remuneration for services rendered. Even when a tuition waiver is granted to a graduate assistant, the waiver is considered distinct from the assistantship stipend; it is only the latter that is payment for services, while the tuition waiver (which, at Northern Illinois University, is the same whether the assistant works 10, 15, or 20 hours per week) is properly referred to as a "tuition-waiver scholarship." Under the Tax Reform Act, a scholarship is not considered taxable income except to the extent that it exceeds tuition and related costs.
Approved by Graduate Council, May 4, 1992
Editorial Modifications October 2004
Last Updated: 5/4/92