Are Stipends Taxable in PA? Compensation, FICA, and Local Taxes

Whether stipends are taxable in PA comes down to one question the state asks: is the payment compensation for services, or a genuine fellowship supporting a degree candidate’s education? If it’s compensation, Pennsylvania taxes it at a flat 3.07%, and local earned income taxes can add another 1% to 3.75% on top.¹ If it’s a true fellowship, the state generally doesn’t tax it, even when the federal government taxes the portion you spent on rent and groceries.

That split matters because Pennsylvania and the IRS use different tests. The IRS looks at how you spent the money (tuition and required course materials are excluded; living expenses are not). Pennsylvania ignores the spending question entirely and looks at the nature of the payment. The same stipend can be partly taxable federally and fully exempt in Pennsylvania, or fully taxable in Pennsylvania and partly exempt federally.

When Pennsylvania Treats a Stipend as Compensation

Pennsylvania defines compensation broadly to include wages, fees, and similar remuneration received for services rendered.² A fellowship paid to a degree candidate purely to support education and living expenses is not taxable compensation under state law.³ But the moment the fellowship requires you to apply your skills to research, creative work, or another project that benefits the institution, it starts looking like compensation, and Pennsylvania generally taxes it.

Three exceptions let a stipend stay excluded even when you’re doing substantive work:

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

The third exception is the one most graduate students rely on. A doctoral program that requires every candidate to teach introductory courses or complete a research project generally supports excluding the associated stipend from Pennsylvania taxable income.²

Postdoctoral Fellowships Have Their Own Test

Postdocs already have their degree, so the degree-candidate exception is unavailable. Pennsylvania applies a separate ten-condition test, and all ten must be met for the fellowship to be excluded from taxable compensation. Miss one, and the full stipend is taxable at 3.07%.

The conditions require that:

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), or a chartered university.
You earned a doctoral degree in a field related to your current research before starting.
Your payment is based on the funding source’s established scale rather than individually negotiated.
You design or advance your own research project throughout the fellowship.
The institution advises on project selection but doesn’t control your hours or methods, except for legal or regulatory requirements.
You aren’t required to teach, do administrative work, or perform other duties.
You aren’t contractually required to work for a specific employer afterward.
Payments last no more than 36 months.
Your research results and writings don’t become the property of the sponsoring organization.

That last item catches many postdocs off guard. If your offer letter assigns intellectual property to the university, the whole stipend becomes Pennsylvania taxable compensation. Read the agreement against each condition before assuming the income is state-tax-free.²

Service-Based Stipends With No Degree Tie

If your stipend is pay for work and isn’t tied to a degree program, it’s taxable compensation under both federal and Pennsylvania law. This covers medical residents, paid interns performing services outside a degree requirement, and anyone receiving money in exchange for labor. The payer reports it on a W-2 if you’re treated as an employee or a 1099-NEC if you’re an independent contractor, and the full amount is subject to Pennsylvania’s 3.07% personal income tax.¹

Local Earned Income Tax and Local Services Tax

When your stipend counts as compensation at the state level, it also triggers local taxes. There are two.

Earned Income Tax

Nearly every Pennsylvania municipality and school district levies an Earned Income Tax (EIT). Rates typically range from about 1% to over 3%. Your rate is set by comparing the total EIT rate where you live against the non-resident EIT rate where you work; you pay whichever is higher.⁴ Your employer should ask you to complete a Residency Certification Form that establishes the correct Political Subdivision codes for both addresses.⁵

Local Services Tax

The Local Services Tax (LST) is a flat annual tax capped at $52, charged by the municipality where you work regardless of income level. Your employer deducts it in small installments through the year.⁶ Municipalities that set their LST above $10 must exempt anyone whose total earned income from all sources within that municipality is under $12,000 a year. If your stipend is small, you can file an exemption certificate with both the employer and the municipality.⁷

Philadelphia’s Separate Earnings Tax

Philadelphia runs its own system outside the statewide EIT. If you live or work in the city, the earnings tax applies at 3.74% for residents and 3.43% for non-residents who work in Philadelphia.⁸ Graduate students get one meaningful break: universities in the city withhold the earnings tax on only 50% of a stipend when the student performs services for that same university. The 50% reduction applies only to stipends paid directly by the student’s own institution, not to external grants or payments from other universities.⁹

FICA on Stipends Paid as Wages

A stipend paid as wages triggers Social Security (6.2%) and Medicare (1.45%) withholding. Students employed by the school where they’re enrolled can qualify for a FICA exemption if they’re at least half-time and education is the primary reason they’re at the institution.¹⁰ The exemption doesn’t apply during summer or other breaks of more than five weeks, and it’s not available at all to postdoctoral fellows, medical residents, medical interns, or clinical fellows. Fellowship income reported without a W-2 generally isn’t subject to FICA, since FICA applies only to employment compensation.

Estimated Payments When Nothing Is Withheld

Many fellowships pay without issuing a W-2 and without withholding any tax. You still owe the tax; you just owe it quarterly instead of all at once in April.

Pennsylvania requires quarterly estimated payments once you have at least $14,000 of income not subject to employer withholding, which translates to about $430 of expected state tax at the 3.07% rate. Due dates for 2026 are April 15, June 15, and September 15, 2026, and January 15, 2027.¹¹ Federal estimated payments follow the same schedule and are generally required when you expect to owe at least $1,000 after withholding and credits. Missing payments at either level can trigger underpayment penalties. If your stipend starts mid-year, estimate your annual income and begin paying for the quarter in which the money first arrives.

Out-of-State Residents Receiving PA Stipends

If you live in another state and receive a stipend from a Pennsylvania institution, reciprocal agreements can simplify things. Pennsylvania has agreements with Indiana, Maryland, New Jersey, Ohio, Virginia, and West Virginia. Residents of those states can file Form REV-419 with the Pennsylvania employer to stop Pennsylvania withholding and have the home state’s tax withheld instead.¹² File a separate form with each employer, but you don’t need to refile each year unless you move.

Residents of other states have different treatment. When 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 for payors sending less than $5,000 annually to a given recipient, though many withhold regardless.¹³

International Students and Tax Treaty Exemptions

On an F-1 or J-1 visa, you may be able to reduce or eliminate federal tax on your stipend under a treaty between the United States and your home country. Each treaty has its own terms, dollar limits, and time limits.¹⁴ To claim it, submit Form W-8BEN to the institution paying your stipend, along with your SSN or ITIN; without the identification number the institution can’t apply the exemption and must withhold at the standard rate. If you receive both wages and a fellowship grant from the same university and both are treaty-covered, Form 8233 handles both exemptions together.

Treaty time limits catch people off guard. Once you’ve been in the United States beyond the window your treaty specifies, you can no longer claim the exemption even if you’re still a student. Some treaties contain a saving clause exception that lets the benefit continue after you become a U.S. resident for tax purposes, but you’ll need to file Form W-9 with a statement explaining the claim. Your university’s international tax office can confirm whether your specific treaty still covers you.

Note that tax treaties operate at the federal level. The Pennsylvania analysis still runs separately through the compensation-versus-fellowship test, so a treaty that zeroes out your federal liability doesn’t automatically answer the state question.

1
Commonwealth of Pennsylvania Department of Revenue. Tax Rates
2
Pennsylvania Code and Bulletin. Pennsylvania Code 61 101.6 – Compensation
3
Pennsylvania Department of Revenue. What Are the Criteria for Excluding a Scholarship, Fellowship or Stipend from PA Taxable Compensation
4
PA Department of Community and Economic Development. Local Withholding Tax FAQs
5
PA Department of Community and Economic Development. PSD Codes and EIT Rates
6
PA Department of Community and Economic Development. Local Services Tax
7
Pennsylvania General Assembly. Local Tax Enabling Act – Section 301.1
8
City of Philadelphia. Earnings Tax (Employees)
9
City of Philadelphia. Grad Student Stipends Get 50% Wage Tax Reduction
10
Internal Revenue Service. Student Exception to FICA Tax
11
PA.gov. 2026 Instructions for Estimating PA Personal Income Tax
12
Pennsylvania Department of Revenue. Employee’s Nonwithholding Application Certificate (REV-419)
13
Pennsylvania Department of Revenue. Personal Income Tax Bulletin 2023-01
14
Internal Revenue Service. Claiming Treaty Exemption for a Scholarship or Fellowship Grant