All students who receive grants and scholarships for educational purposes must be aware that some portion of these funds may be subject to U.S. taxation. The portion that is not taxed and the portion that is taxed can be referred to, respectively, as “qualified scholarship” (meaning it does not need to be taxed) and “unqualified scholarship” meaning this portion of the scholarship can be taxed.
Any portion that is to be taxed would be done so at 14%.
Some counties share a tax treaty with the United States which may reduce the tax obligation.
The following information has been provided by the Haverford College Business Office to help international students understand how taxation works, and what steps they need to take to make sure all is in order.
U.S. source scholarships/fellowships are reportable only for amounts which are taxable. The taxable portion of a scholarship/fellowship is that portion which is not excludable from gross income as a "qualified scholarship" under IRC section 117. Withhold at 14% if the payee is in F, J, M, or Q nonimmigrant status. Withhold at 30% for payees in other nonimmigrant statuses. The student articles of some income tax treaties exempt scholarships/fellowships from U.S. income tax. (See Table 2 in IRS Publication 515 or 901.) The beneficial owner may claim the lesser tax treaty rate by filing Form W-8BEN with the withholding agent. The withholding agent will report the payment on Forms 1042 and 1042-S, even if the entire amount is exempt under a tax treaty. (Source: https://www.irs.gov/individuals/international-taxpayers/federal-income-tax-withholding-and-reporting-on-other-kinds-of-us-source-income-paid-to-nonresident-aliens)
What is “Qualified Scholarship”?
The qualified amount received from a scholarship/fellowship grant is not considered taxable income to a matriculated student if the money is used for “qualified tuition and related expenses” as outlined below from 26 U.S. Code § 117 - Qualified scholarships:
- tuition & fees required for the enrollment or attendance of a student at an educational organization.
- fees, books, supplies, and equipment required for courses of instruction at an educational organization.
The amount received by the student for qualified expenses does not need to be reported to the Internal Revenue Service (IRS) on Form 1042-S.
What is “Non-qualified Scholarship”?
The non-qualified amount received from a scholarship/fellowship grant is a payment to the student above the costs required for tuition, fees, books, supplies, and equipment. This income is often used by the student for room & board or other non-required expenses, and is considered taxable by the IRS.
Please see the following page for a list of countries that have a tax treaty with the U.S. which includes an exemption for non-compensatory, academic payments to students. To be eligible for a reduction in tax withholding the student must live in a country that provides a tax treaty benefit, have a valid U.S. taxpayer identification number, and submit Form W-8BEN to the Business Office.
ALL INTERNATIONAL STUDENTS RECEIVING A HAVERFORD COLLEGE GRANT SHOULD SUBMIT FORM W-8BEN TO THE BUSINESS OFFICE REGARDLESS OF MAKING A CLAIM OF TAX TREATY BENEFITS OR NOT.
Non-qualified payments and the amount of Federal Tax withheld, if any, will be reported on Form 1042-S; copies will be sent to the student and to the IRS by March 15th of the following calendar year. If your country is not listed here, do contact Mr. Frank Wilson (firstname.lastname@example.org) directly.
|Bangladesh||No limit||21 (2)|
|Belgium||No limit||21 (1)|
|Peoples Republic of China||No limit||20 (b)|
|Cyprus||No limit||21 (1)|
|Czech Republic||No limit||21 (1)|
|Egypt||No limit||23 (1)|
|Estonia||No limit||20 (1)|
|France||No limit||21 (1)|
|Georgia||No limit||VI (1)|
|Germany||No limit||20 (3)|
|Iceland||No limit||22 (1)|
|Indonesia||No limit||19 (1)|
|Israel||No limit||24 (1)|
|Japan||No limit||20 (1)|
|Republic of Korea (South)||No limit||21 (1)|
|Latvia||No limit||20 (1)|
|Lithuania||No limit||20 (1)|
|Netherlands||No limit||22 (2)|
|Norway||No limit||16 (1)|
|Philippines||No limit||22 (1)|
|Poland||No limit||18 (1)|
|Portugal||No limit||23 (1)|
|Romania||No limit||20 (1)|
|Slovak Republic||No limit||21 (1)|
|Slovenia||No limit||20 (1)|
|Spain||No limit||22 (1)|
|Thailand||No limit||22 (1)|
|Trinidad & Tobago||No limit||19 (1)|