Are Stipends Taxable in PA? State, Federal, and Local Rules

Whether stipends are taxable in PA comes down to one question under state law: is the payment compensation for services, or a genuine fellowship supporting a degree candidate’s education? Pennsylvania taxes the first at its flat 3.07% personal income tax rate and excludes the second, and it reaches that answer differently than the IRS does. A stipend that is partly taxable federally can owe nothing to Pennsylvania, and a stipend that looks tax-free federally can still be fully taxable here. Local taxes can add another 1% to 3.75% on top.¹

How Pennsylvania Classifies a Stipend

Pennsylvania does not care how you spend the money. The federal exclusion under Section 117 turns on whether stipend dollars go to qualified expenses like tuition and required books versus room, board, and travel. Pennsylvania ignores that split entirely. The state asks whether the payment is compensation for services rendered. A fellowship given to a degree candidate purely to support their education and living expenses is not taxable compensation under Pennsylvania law, even when the federal government taxes the portion used for living costs.²

The harder cases involve fellowships that require you to do real work: advance a research project, produce creative output, teach a course. That starts to look like compensation, and Pennsylvania generally treats it that way. Three exceptions preserve the exclusion:

The results of your work are so minor that they don’t give the institution a realistic basis to pay you for them.
Your activities are so closely supervised by regular faculty that supervising you is more burden than benefit to the institution.
You are a degree candidate and every student in your program must perform the same activities to earn the degree.

The third exception carries most of the weight in practice. A doctoral student whose program requires all candidates to complete a research project or teach introductory courses can typically exclude the associated stipend from Pennsylvania taxable income. The first two are harder to prove but worth raising if your situation is unusual.³

Postdoctoral Fellows Face a Separate Ten-Point Test

Postdocs cannot use the degree-candidate exception, because they already have the degree. Pennsylvania applies a separate test with ten conditions, all of which must be satisfied for a postdoctoral fellowship to escape state tax. If even one fails, the entire payment is taxable at 3.07%.

Funding comes from a government agency, a private foundation, a 501(c)(3) or 501(c)(5) organization, or a public or private university chartered by a state.
The sponsoring institution is a government agency, a 501(c)(3) organization, or a chartered university.
You earned a doctoral degree in a field related to your research before starting the fellowship.
Your stipend is set by the funding source’s established scale rather than individually negotiated.
You design or advance your own research throughout the fellowship.
The sponsoring institution advises on project selection but does not control your hours or research methods, except for legal or regulatory requirements.
You are not required to teach, do administrative work, or perform other duties as a condition of the fellowship.
You are not contractually obligated to work for any specific employer afterward.
Payments last no more than 36 months.
Your research results and writings do not become the property of the sponsoring organization.

The intellectual-property condition is the one that most often quietly disqualifies a postdoc. If your fellowship agreement assigns IP rights to the university, the whole stipend becomes taxable compensation in Pennsylvania. Read the offer letter against all ten conditions before assuming the money is state-tax-free.³

Service-Based and Non-Educational Stipends

If your stipend is straightforward pay for work and has no connection to a degree program, it’s taxable as compensation under both federal and Pennsylvania law. That covers medical residents, paid interns whose work is not part of a degree requirement, and anyone paid a stipend in exchange for labor. Pennsylvania defines compensation broadly to include wages, fees, and “similar remuneration received for services rendered,” which sweeps in most service-based stipends.³

The payer reports the income on a W-2 if you’re an employee or a 1099-NEC if you’re an independent contractor. Either way, the full amount is subject to Pennsylvania’s 3.07% personal income tax.

Federal Treatment in Brief

Federal rules matter because they set what your university withholds and what you report on Form 1040. Under Section 117 of the Internal Revenue Code, scholarship and fellowship money used by a degree candidate at an accredited institution for tuition, fees, and books and supplies required for courses is excluded from gross income.⁴ Amounts spent on room, board, travel, or optional equipment are taxable. Non-degree-candidates get no exclusion, and their entire stipend is taxable federally.⁵

If your stipend is pay for teaching or research services, the IRS treats the whole payment as wages regardless of student status, and the university reports it on a W-2.⁶ Fellowship amounts without a W-2 still need to be reported on Schedule 1.

Local Taxes on Stipends

If your stipend counts as compensation for state purposes, local taxes generally follow. Two apply in most of Pennsylvania, and Philadelphia runs its own separate system.

Earned Income Tax

Nearly every municipality and school district outside Philadelphia levies an Earned Income Tax. Rates typically run from about 1% to over 3%. Your rate is the higher of the total EIT rate where you live and the non-resident EIT rate where you work.⁷ Your employer should ask you to complete a Residency Certification Form to identify the correct Political Subdivision codes.⁸

Local Services Tax

The LST is a flat annual tax capped at $52, charged by the municipality where you work, and it isn’t tied to how much you earn. Employers deduct it in small installments across the year. Municipalities that set the LST above $10 must exempt anyone earning less than $12,000 per year from all sources within the municipality. If your stipend is small enough, you can file an exemption certificate with your employer and the municipality to avoid it.⁹

Philadelphia’s Earnings Tax

Philadelphia sits outside the statewide EIT system and runs its own earnings tax. The rate is 3.74% for city residents and 3.43% for non-residents who work in the city.¹⁰ Philadelphia gives graduate students one meaningful break: universities in the city withhold the earnings tax on only 50% of the stipend amount for graduate students who perform services for the university. The reduction applies only to stipends paid directly by the student’s own university, not to funding from external grants or other institutions.¹¹

When You Have to Pay the Tax Yourself

Many stipends, especially fellowships without a W-2, have no taxes withheld at the source. You still owe the tax. You just have to pay it in quarterly installments rather than at filing time.

Federally, the IRS requires estimated payments if you expect to owe at least $1,000 after withholding and refundable credits and your withholding will cover less than 90% of your current-year tax (or 100% of last year’s). Pennsylvania’s threshold is lower: once you have at least $14,000 in income not subject to employer withholding, meaning about $430 in expected state tax, you owe quarterly estimated payments. Federal and Pennsylvania estimated payments for 2026 share the same schedule: April 15, June 15, and September 15, 2026, and January 15, 2027.¹²

Missing payments triggers underpayment penalties at both levels. If your stipend begins mid-year, project your annual income and start payments for the quarter in which the money first arrives.

If You Live Outside Pennsylvania

Six states have reciprocal agreements with Pennsylvania: Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. Residents of those states can file Form REV-419 with a Pennsylvania employer to stop Pennsylvania withholding and pay their home state’s income tax instead.¹³

Non-residents from other states face different rules. Where a Pennsylvania-source stipend is reported on a 1099-NEC, the payer is generally required to withhold Pennsylvania income tax at 3.07%. Withholding is optional when the payor pays a recipient less than $5,000 annually, though many withhold anyway.¹⁴

International Students on F-1 or J-1 Visas

A tax treaty between the United States and your home country may reduce or eliminate federal tax on your stipend. Not every country has one, and each treaty carries its own dollar limits, time limits, and covered categories of income.¹⁵ To claim the exemption, submit Form W-8BEN (or Form 8233 if you receive both wages and a covered fellowship grant from the same university) to the paying institution. You need an SSN or ITIN on the form; without one, the institution cannot apply the exemption and must withhold at standard rates.

Treaty exemptions expire. Once you have been in the U.S. beyond the period specified in your country’s treaty, the exemption stops, even if you remain a student. Some treaties include a saving clause exception that allows the exemption to continue after you become a U.S. resident for tax purposes, but claiming it requires Form W-9 with a statement explaining the treaty position. Your university’s international tax office can confirm whether your specific treaty still applies to you. Note that treaties address federal tax; they do not, on their own, exempt a stipend from Pennsylvania income tax if the payment is compensation under state law.

1
Commonwealth of Pennsylvania Department of Revenue. Tax Rates
2
Pennsylvania Department of Revenue. What Are the Criteria for Excluding a Scholarship, Fellowship or Stipend from PA Taxable Compensation
3
Pennsylvania Code and Bulletin. Pennsylvania Code 61 101.6 – Compensation
4
Office of the Law Revision Counsel. 26 USC 117 Qualified Scholarships
5
Internal Revenue Service. Topic No. 421 Scholarships, Fellowship Grants, and Other Grants
6
Internal Revenue Service. About Form 1099-NEC, Nonemployee Compensation
7
PA Department of Community and Economic Development. Local Withholding Tax FAQs
8
PA Department of Community and Economic Development. PSD Codes and EIT Rates
9
Pennsylvania General Assembly. Local Tax Enabling Act – Section 301.1
10
City of Philadelphia. Earnings Tax (Employees)
11
City of Philadelphia. Grad Student Stipends Get 50% Wage Tax Reduction
12
PA.gov. 2026 Instructions for Estimating PA Personal Income Tax
13
Pennsylvania Department of Revenue. Employee’s Nonwithholding Application Certificate (REV-419)
14
Pennsylvania Department of Revenue. Personal Income Tax Bulletin 2023-01
15
Internal Revenue Service. Claiming Treaty Exemption for a Scholarship or Fellowship Grant