Tax Information for Fellowship / Scholarship Recipients
Students bear the tax burden, federal government agencies force students to determine taxation of scholarships and fellowships when filing annual income tax returns. Indiana University does not issue 1099's to scholarship holders.
Stipends and Tuition
The general rule is that any income is subject to federal taxation. Qualified scholarships and fellowships, however, are excluded from taxation when the award is a qualified scholarship given to the recipient who is seeking a degree that is made for the purpose of studying or conducting research at an educational institution.
Qualified scholarship and fellowships are defined to include tuition and fees required for enrollment or attendance at the educational institution and fees, books, supplies or equipment required for courses of instruction at the institution.
ALL STIPENDS ARE TAXABLE INCOME. For tax purposes you must keep copies of all award notices and announcements. For items you wish to deduct you must have receipts.
Who must file
- Federal Income Tax: All students must file.
- FICA (Social Security & Medicare): "most" Graduate students are exempt.
- State tax: All students must file, if you reside or have worked in another state you may have to file in those states also.
- Please be aware that you should estimate at least 15% for US citizens.
When to file
- Students must file estimated taxes quarterly.
- Those waiting until the end of the year to file may be subject to penalties.
Estimated taxes for the calendar year are due in four installments; April 15th, June 16th, September 15th and January 15. Payments should accompany a form 1040-ES with the student's social security number listed on the form. Failure to make these payments timely may result in the assessment of underpayment penalities. To avoid this penalty the student may (1) pay at least 90% of the tax shown on the current year's return, (2) pay 100% of the tax shown on the prior year's return assuming that the return represents a 12 month period, or (3) make payments on a current basis using annualized income installment methods. Scholarship and Fellowship recipients should retain fee statements, textbook receipts and similar records to support their calculations of the nontaxable and taxable portions of their awards.
Special rules apply to international students, visiting scholars and non-resident aliens. The IRS requires educational institutions to report scholarship and fellowship grants to non-resident aliens on form 1042S-Foreign Person's US Sourced Income Subject to Withholding. Prior to 2001, schools were required to report the nontaxable scholarship or fellowship amounts, but beginning with payments made in 2001, reporting of these payments is no longer required. Accordingly, it is the responsibility of the foreign person to determine that the withheld amount is correct, i.e. whether a tax treaty exemption applies, whether the reduced withholding rate applies, etc. For more extensive information go to the IU Office of International Services tax site.
Publications, instructions, forms, etc.
How To Get Tax Help
- IRS at 1-800-829-1040
- IRS for TTY/TDD users: 1-800-829-4059
- IRS Taxpayer Advocate: 1-877-777-4778
- IRS Tele Tax topics: 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.
- CD-ROMs can be purchased from National Technical Information Service (NTIS) by calling 1-877-233-6767 or on the Internet at www.irs.gov
- Order IRS forms by telephone: 1-800-TAX-FORM (1-800-829-3676).
- Indiana Department of Revenue (Bloomington branch): 812-339-1119
- IRS Publication 17 - Your Federal Income Tax
- IRS Publication 505 - Tax Withholding and Estimated Tax
- IRS PUblication 515 - Withholding of Tax on Nonresident Aliens and Foreign Entities
Revised from Tax Information for Fellowship/Scholarship Recipients of the Rackham Graduate School, University of Michigan