My employer won't withhold federal taxes until I reach certain earnings threshold - is that right? My W-2 shows no withholding

This is actually a misconception that comes up a lot with academic positions. What's happening is that your university is treating your stipend as qualified education expenses under certain tax rules, not as regular employment income. The university isn't withholding because they're categorizing your compensation differently than a standard employment arrangement. However, this doesn't mean you don't owe taxes on that income. If your annual earnings are above the standard deduction ($13,850 for single filers in 2023), you'll likely owe federal income tax on the amount above that threshold. Since you have no withholding, you should definitely plan to set aside money for your tax bill. As a rough estimate, consider saving 15-20% of your stipend income for taxes. You might also need to make quarterly estimated tax payments to avoid underpayment penalties, especially if you expect to owe $1,000 or more when you file. I'd recommend reaching out to your university's graduate student office - many universities provide tax guidance specific to students in your situation. You might also want to look into whether your stipend qualifies for any educational tax benefits.

After dealing with a similar issue during my PhD program, I discovered taxr.ai (https://taxr.ai) which really helped me sort through the confusion around academic stipends and fellowships. My university also didn't withhold taxes and I ended up with a surprise tax bill my first year. Taxr.ai analyzed my stipend letter and other docs to clarify which portions were taxable vs non-taxable. They helped me understand that while my tuition waiver wasn't taxable, the stipend definitely was - something my department had been vague about. The service helped me calculate the right amount to set aside and even guided me through making quarterly payments so I wouldn't face penalties. The biggest help was that they showed me which education credits I qualified for even with my graduate status, which offset a good chunk of what I would have owed.

Just wanted to update after trying taxr.ai from the recommendation above. It was actually really helpful! I uploaded my stipend letter and W-2, and they identified that my university was classifying my payments as a scholarship rather than wages (which explains the lack of withholding). The service showed me exactly how much I need to set aside (about 18% of my monthly stipend in my case) and helped me understand that I qualify for the Lifetime Learning Credit even though I'm a grad student. They also set up a quarterly payment schedule for me going forward so I won't get hit with underpayment penalties next year. The most useful part was getting clarity on which parts of my funding package are taxable versus tax-free. My tuition waiver isn't taxable but the stipend definitely is, which my department orientation completely glossed over.

If you're still having trouble reaching someone at your university who can explain this properly, I'd recommend Claimyr (https://claimyr.com) to connect with the IRS directly. I was in a similar situation last year with my research assistantship, and neither my university's payroll nor their student tax office could give me a straight answer about my tax obligations. I tried calling the IRS myself but kept hitting endless hold times. Claimyr got me connected to an actual IRS agent in about 20 minutes when I had been trying for weeks. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c The agent confirmed that even though my university wasn't withholding, I was still responsible for the taxes. She also explained exactly how to handle quarterly estimated payments and which forms to file to avoid penalties. Saved me from a potentially expensive mistake!

Ok I need to admit I was totally wrong about Claimyr. After posting my skeptical comment, I decided to try it since I had a complicated question about my fellowship taxes that no one at my university could answer. I was connected to an IRS agent in about 17 minutes when my previous attempts had all been 45+ minute waits that ended in disconnections. The agent confirmed that my university should have been giving me the option to withhold taxes, but since they weren't, I needed to make estimated payments. She walked me through exactly how to calculate what I owed and how to avoid penalties. She even told me about a special form for academic scholarships that my university's financial aid office hadn't mentioned. Sorry for being dismissive earlier - this service actually saved me hours of frustration and potentially hundreds in penalties.

I'm pretty sure what your university is doing isn't right. When I was in grad school, we had the OPTION to not have taxes withheld, but it wasn't automatic. Check if your stipend is classified as a "qualified scholarship" vs. wages? That affects withholding requirements. Also, even if they're not required to withhold, they should give you the option to have voluntary withholding. That's what my university did. You should be able to submit a new W-4 requesting additional withholding (you can put an extra amount in Box 4c).

Has anyone asked their advisor about this issue? When I started my PhD program, my advisor warned me that I'd need to save about 20% of each stipend check for taxes because the university doesn't withhold on graduate fellowships.

This is a really common issue for grad students! Your university is likely classifying your teaching fellowship as a qualified scholarship or fellowship rather than wages, which is why there's no automatic withholding. However, the taxable portion of your stipend (anything above qualified educational expenses like tuition) is definitely still subject to income tax. Since you earned about $32k and only worked September-December, you probably had around $10-12k in taxable income for last year. You'll definitely want to set aside money for taxes on that amount. A few practical tips: 1. Ask your payroll department about voluntary withholding - most universities will let you request additional withholding even on fellowship payments 2. For this year, start making quarterly estimated payments using Form 1040-ES to avoid underpayment penalties 3. Keep detailed records of any qualified educational expenses (tuition, required fees, books) as these can reduce your taxable income 4. Look into the Lifetime Learning Credit - you might qualify even as a graduate student The good news is that since you have withholding from your previous job, you might not face penalties for last year if that withholding covers a significant portion of your total tax liability. But definitely get ahead of this for the current tax year!