I am a starting fellow (considered a 4th year resident by the ACGME) at a large University and receive a "salary stipend". My appointment letter states that "the stipend is for education and training and that no employee-employer relationship exists between myself and the University." It also states that "as a condition of the receipt of this award no service shall be performed." The University doesn't file a W2 on my behalf and does not take out any taxes from the monthly installments I receive out of this stipend. Based on this the fellows ahead of me do not claim this as income, and therefore do not pay taxes on it, they verified this with a local CPA and H&R Block. However after checking with my previous CPA I can not find any documentation that this is legal. I really need to know if I should be putting some of the money I receive aside every month because I will be in a real jam if I all of a sudden have to come up with a large amount of money at tax time. Also, I am concerned that I may face a penalty if I do have to pay taxes on this money for not having made a payment earlier. I have not received any answers from the local CPA the previous fellows used, but if I am legally allowed to not claim this money I am going to need a CPA to sign off on my tax return at the end of this fiscal year. Do you all know anything about this, I am getting alot of different answers and really need some solid advice. Thanks so much. -VL

Zip Code: VLeswing@verizon.net

There are a few issues going on here. Here are my understanding of the rules.

First, fellowships and stipends are taxable to the extent they exceed the amount you spend for tuition. Check out IRS Publication 970, Tax Benefits for Education, available at www.irs.gov. So I don't agree that this income is not subject to federal income taxes.

The second issue is whether this income is subject to social security and Medicare taxes. Generally, this income is viewed more as an allowance than as compensation for services - which means it's exempt for social security and Medicare taxes.

I hope this helps point you in the right direction.

Zip Code: aschwartz@mdtaxes.com

Thanks for you help VL

Zip Code: VLeswing@verizon.net