Taxation of Scholarships, Fellowships & Stipends

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.

Stipends are subject to withholding when paid to nonresident aliens. The withholding tax rate is 30%. However, the withholding tax rate may be reduced to 14% if the stipend is paid to a nonresident alien student or researcher with an F-1, J-1, M-1, or Q-1 visa. 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 tax 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 Form 1040-NR and the corresponding state forms.