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Guidelines and Policies for Scholarship & Fellowship Payments Tax Computation on Scholarships |
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General Tax InformationUnder Internal Revenue laws and regulations your resident or nonresident alien status is determined by either a "Green Card", marriage to a U.S. citizen or resident, or substantial presence test. For the substantial presence test, the number of days in your first 5 years in the U.S. as a student (F-1 visa) or first 2 years if you are a teacher/researcher (J-1 visa) are not counted. During this time you are "exempt" from the substantial presence test. Nonresident aliens are taxed only on income from U.S. sources. During the time you are a nonresident alien, you must fill out either a 1040NR or 1040NR-EZ form if you have U.S. source income and Form 8843 if you are "exempt" from the substantial presence test.
Guidelines and Policies for Scholarship & Fellowship PaymentsIf you receive scholarship and fellowship payments from only non-U.S. sources, no reporting or withholding is required. Therefore, no forms are required and you will not receive a 1042-S from the University of Washington. Beginning with the tax year 2002, the university is no longer required to report students with U.S. source funds that do not exceed the cost of tuition, fees, and an allowance for books as these are considered "qualified" expenses. If all the money you receive is qualified, you will no longer receive a 1042-S form. If the payments you receive are in excess of tuition, fees and a book allowance, these are considered "unqualified". The university will report all unqualified scholarships to the IRS and you will receive a 1042-S form from the Payroll Office no later than March 15th of the following calendar year. If you receive unqualified payments in excess of a personal allowance, you will have tax withheld. The amount of personal allowance is prorated on a daily basis during the period of the year you are in the United States. The University calculates your personal allowance quarterly (one quarter equals 91 days) based on your enrollment status for that quarter. Tax WithholdingGenerally IRS regulations require that 14% of non-qualified scholarship and fellowship payments paid to F, J, Q or M visa holders be withheld as federal income tax, unless you are a resident of a country with which the United States has a applicable income tax treaty. IRS Form W-4 for Individuals Not From Tax Treaty CountriesYou may be eligible for additional exemptions provided you complete a W-4 claiming those exemptions, along with an attached statement that you have filed a U.S. tax return for the previous year or will file a U.S. tax return if the current year is your first year. IRS Form W8-BEN for Individuals from Tax Treaty CountriesNon-qualified scholarship and fellowship payments made to nonresident aliens claiming exemption from the 14% Federal withholding tax (because of an income tax treaty) are reported by the University to the IRS. The IRS, in turn, reports this income to the applicable country of residence. If you wish to claim a tax treaty exemption, you must complete IRS Form W8-BEN. You should keep copies of any of these documents. Send the original to the UW Payroll Office, Box 355655. If you are a nonresident alien student and you desire
in-depth information, or have an unusual or difficult situation
regarding your obligations under the U.S. federal income tax
laws, you should direct your questions to: Internal Revenue Service Or contact the local Internal Revenue Service or a tax advisor. Tax Computations for ScholarshipsQuestion: If a department wanted to make a taxable scholarship payment of a certain amount to a nonresident alien student, how much additional expense would the department incur? The U.S. tax code requires federal income tax withholding on all U.S. source non-qualified scholarship payments to nonresident alien students. The withholding rate for payments to students on F-1 or J-1 visas is 14%. Non-qualified scholarships are those payments for expenses other than tuition and course-related expenses. Revenue Procedure 81-48 outlines a formula which may be used to calculate an employee's wages when the employer pays the employees tax. Such a formula could be used in this case as well. The formula is as follows: W = S / 1 - R
For example, if the University wanted to make an after tax non-qualified scholarship payment to a student on an F-1 visa of $1000, it would need to report $1162.79 of pretax income calculated as follows:
In other words, if you want the student to receive $1000, divide the $1000 by .86%. It will be $162.79. The total expenditure to a department paying the tax is $1162.79. If You Don't Have a Social Security NumberYou must get a tax identification number. If you are eligible, you should get a social security number (1-800-772-1213). If you are not eligible for a social security number, you may get an ITIN (Individual Tax Identification Number). The University of Washington is able to process applications for ITINs, but only if you are unable to obtain a social security number. Contact itin@u.washington.edu for more information.Go to the International Student Office in 459 Schmitz Hall and get a letter declaring that you may possibly receive assistance from a U.S. source while you are in the United States. You cannot get a social security number without this letter. Complete Form SS-5 and take the form in person to a Social Security Administration office with your passport and original Immigration and Naturalization Service (INS) documents (for example: I-94.Alien Registration Receipt Card IAP66 or I-20). The locations of the nearest Social Security offices are:
Or you may use the Social Security website to locate offices near where you work or live. The addresses to obtain ITIN numbers are:
Other Useful Web SitesOther web sites that you might find useful for more information on nonresident alien tax information include:Frequently Asked Questions about Nonresident Alien (NRA) tax. |
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