A scholarship/fellowship payment received by a candidate for a degree is generally not taxable income to the student if it is used for "qualified expenses." Qualified expenses are defined by the Internal Revenue Service (IRS) and include tuition and required fees, and/or for books, supplies, and equipment required of all students in the course. These payments do not need to be reported to the IRS by the student or the university.
A scholarship/fellowship used for expenses other than qualified expenses is taxable income. Taxable scholarships are generally referred to as stipends and are payments for which no services are rendered or required. Examples of stipends are payments that can be used for living and incidental expenses such as room and board, travel, non-required books and personal computers, etc. The granting department is responsible for correctly determining the amount, which should be classified as a stipend, but such determination is always subject to review and reclassification by the Tax Department. All stipends are paid through University Payables except for certain athletic living stipends, which are paid through Student Account Services.
A stipend paid to a non-resident alien with an F-1, J-1, M-1, or Q-1 visa is subject to U. S. income tax withholding at a rate of 14% unless tax treaty relief is available. Currently, state taxes are not required to be withheld by the University even though the payments may be taxable in the state. This, however, is subject to changes in state legislation. A taxable scholarship/fellowship is not subject to FICA withholding since the payment is not for services.
Students from countries that have a tax treaty with the U.S. that includes a scholarship article may claim exemption or a reduction of the 14% withholding if the payment meets the requirements of the treaty. The student must, however, complete the required forms at the university's Tax Department.
The university reports stipend payments and the amount of federal tax withheld, if any, on Form 1042-S to the student and to the IRS. Students are responsible for reporting these payments and remitting any tax due with their personal income tax return at the end of the year on Forms 1040NR or 1040NR-EZ and the corresponding state forms.
- International Students
- Meeting with the Tax Department
- Foreign National Information System
- Taxation of Wages for International Students
- Taxation of Scholarships, Fellowships & Stipends
- Social Security and Medicare Taxes
- State Income Taxes
- Social Security Number & Individual Taxpayer identification Number
- Forms and Publications
- Frequently Asked Questions for International Students
- International Tax Workshop
- Tax Implications and Reporting Requirements of Payments to International Students (“Nonresident Aliens”)
- U.S Citizens & Residents