Graduate Fellowship Appearing As Unearned Income

note2liam
note2liam Member Posts: 1 Newcomer
edited March 31 in Income

Hello, in 2024 I was a California permanent resident while attending university in Illinois. For the final few months of the year I became a graduate student and received a W-2 for most of my income (which had Illinois and Federal taxes withheld). I also received a Graduate Fellowship totaling a little over 2600 for FY 2024. My W-2 and this fellowship stipend are my only income except for a small amount of stock dividends which I figured I would be paying California tax on.


I am able to correctly enter this for the Federal Tax Return and I am able to designate that all of this income was Illinois income for the Illinois Tax Return. However, for the California tax return it seems to believe that my Fellowship stipend is "unearned income" and is making me fill out my parents (who are both California residents) income for this year (Form 3800).

Is this correct? And if this is the case wouldn't I be double taxed on this income as I would be paying Illinois income tax on the stipend + a California unearned income tax on it.

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Answers

  • CoryF
    CoryF FreeTaxUSA Agent Posts: 198

    This is correct.

    CA changed laws to incorporate the Parents tax rates for unearned income totaling more than $2,600 in a tax year for adults younger than 24. Please see the information on this CA Franchise Tax Board page explaining what is happening. FreeTaxUSA is taking your birthdate and the fact that the Graduate Fellowship is unearned income to apply this aspect of reporting your Parents' income to figure their tax rates to apply to your CA state tax return. You will have the option to answer questions about your Parents and their income.

    It may be that you will be taxed for the income on IL and CA. However, states do not like double taxation and there may be a credit for taxes paid to another state on the unearned income taxed on your CA return from the IL taxes.

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