Scholarships & Fellowships
Important Note: This information is not intended as tax advice and you are encouraged to seek the assistance of a tax adviser.
Introduction
A scholarship is generally an amount paid or allowed to, or for the benefit of, a student (whether an undergraduate or a graduate) at an educational institution to aid in pursuit of his or her studies.
A fellowship grant is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research.
Stipends or other payments require the student to render services to the university is considered compensation that must be paid through payroll in order for the proper tax withholdings to be applied to the payment.
Amount of scholarship or fellowship
The amount of a scholarship or fellowship grant includes the following:
- The value of contributed services and accommodations. This includes room (lodging), board (meals), laundry service, and similar services or accommodations that are received by an individual as a part of a scholarship or fellowship grant.
- The amount of tuition and other fees that are paid for or remitted to the student to aid the student in pursuing study or research.
- Any amount paid to the student for living expenses
- Any amount reimbursed to the student for travel expenses when the student is not traveling as part of their employment with the university.
Tax-Free scholarships or fellowships
- Under federal tax law, only qualified scholarships or fellowships may be excluded from the recipient's gross income.
- Qualified scholarships or fellowships are amounts awarded to degree candidates and used for educational expenses such as tuition, required fees, books, supplies and equipment required for courses of instruction. If the award specifies that any portion of the scholarship or fellowship may not be used for these expenses or if it designates any portion to be used for non-qualifying amounts, then those amounts are not qualified scholarships or fellowships.
- Awards that are not qualified are includable in the recipient's gross income. Room, board and living expenses are not qualified and therefore are included in gross income.
- An individual who is not a candidate for a degree must include any amount of scholarship or fellowship in gross income.
- A scholarship or fellowship which is conditioned upon past, present or future services by the recipient is not a qualified scholarship or fellowship and may not be excluded from gross income.
Reporting and withholding on Scholarships and Fellowships
- The university is not required to report qualified scholarships and fellowships.
- The university is not required to report non-qualified scholarships and fellowships to the IRS for U.S. citizens, permanent residents and resident aliens. Non U.S. citizens will be considered nonresident aliens for tax purposes unless documentation is provided to show permanent resident or resident alien status. Please see IRS Publication 970 for reporting non-qualified amounts.
- The university is required to report and withhold on non-qualified scholarships and fellowships paid to nonresident aliens.