Students Scholarship and Fellowship Payments
Treasury Regulation section 1.117-3 (a) defines a scholarship as "an amount paid for the benefit of the student whether an undergraduate or graduate, to aid such individual in pursuing his studies." Treasury Regulation section 1.117-3(c) defines a fellowship as "an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research." Services are not required for these types of payments.
There are two types of scholarships and fellowships for tax purposes, qualified and nonqualified. Qualified scholarships and fellowships are amounts that directly pay for tuition, required fees, books, and required equipment for classes. Nonqualified scholarships and fellowships are amounts for room and board, personal equipment, living expenses, optional fees and other expenses not required either for enrollment or attendance at UNCSA.
Qualified scholarships and fellowships are exempt from taxes. Nonqualified scholarships and fellowships are considered income and are taxable.
U.S. Citizen Recipient
IRS does not require the University to withhold taxes or prepare form W-2 or 1099-MISC for the Scholarships and Fellowship Grants payments made to U.S. citizens. However, the grantor should make the recipient aware that qualified Scholarships and Fellowship Grants are tax-free but nonqualified Scholarships and Fellowship Grants are taxable. For more information on the Scholarships and Fellowship Grants taxation, refer to IRS Publication 970.
Foreign National Recipient
The University is required to withhold taxes from the nonqualified scholarship and fellowship payments made to nonresident aliens. The University is also required to report such payments at the year-end on Form 1042-S.
Nonqualified scholarships and fellowships made to a nonresident alien are subject to 14% tax withholding (for F, J, M & Q student visa holders), unless exempt by a tax treaty. All other visa holders receiving a scholarship or fellowship payment are subject to 30% tax withholding.
Payment of Scholarships/Fellowships to Foreign National students
The Controller’s Office must be notified when paying a scholarship/fellowship to a foreign national student. The Controller's Office will then reach out to the foreign national student to perform a tax assessment.
The following documents will be requested from the foreign national student.
- Copy of passport
- Copy of visa
- Copy of DS2019 or I-20
- I-94 Information Form
- Foreign National Information Form
- IRS Form W-8BEN
- IRS Form 8233, if claiming treaty benefits
No treaty benefits are allowed if the foreign national student does not have a valid U.S. Social Security number or ITIN number.