Qualified and Non-qualified Scholarship and Fellowships
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First Published :Thu Jul 27 18:01:04 GMT 2017
Last Modified :Mon Apr 11 15:51:16 GMT 2022
Last Published :Mon Apr 11 15:51:16 GMT 2022
differentiates between the two and describes the tax ramifications
Qualified scholarship/fellowship is amount used to pay tuition and fees required of all individuals in a program. Qualified scholarship/fellowship payments are made through the Office of Financial Aid.
Non-qualified scholarship/fellowship is amounts that exceed tuition and required fees, and are used for travel, room & board, incidental expenses and optional equipment or require services be performed as a condition for receiving the scholarship or fellowship. A scholarship for health insurance is Non-qualified (taxable). Students need to show they have insurance but not all get it through Tufts since most are covered under their parents plans. Thus that fee is not required of all people in the program. Payment for a non-qualified scholarship/fellowship is made using electronic check voucher unless there are required services, and in that case paid through payroll.
The majority of the scholarships awarded at Tufts are considered to be qualified under IRS regulations and processed via the Financial Aid Office. Qualified awards do not exceed stated tuition and fees amounts. Scholarships that exceed tuition and fees and/or support other expenses such as travel or room and board are non-qualified and therefore taxable to the recipient. Taxable scholarships and fellowships are paid through Accounts Payable and are reported and/or taxed according to government guidelines.
Generally, all payments, with the exception of travel reimbursements or refunds, made through the Accounts Payable Office to U.S. citizens are considered taxable to the recipient and, with the exception of scholarship/fellowships are reported on a 1099 form if the total of all payments equals or exceeds $600 in a calendar year. Scholarships and fellowships paid to US citizens are not reported to the recipient. Provided the recipient has a W-9 form on file with A/P, taxes are not withheld from those payments that are taxable unless specifically requested by the recipient.
Generally, all payments, with the exception of travel reimbursements and refunds, made through the Accounts Payable Office to non-U.S. citizens (typically referred to as non-resident aliens or NRA’s) that are determined to be “US source income” are subject to a 30% withholding rate unless exempted or reduced under a tax treaty. Taxes are withheld from the payment and reported to the individual on a 1042-S form at year end. Similarly, income that is exempt from tax due to a tax treaty is also reported to the recipient on a 1042-S form. Non-qualified scholarship/fellowship payments made to NRA’s present in the US on an “F” “J” “M” or “Q” visa will be taxed at a 14% rate when the funds are utilized within the US. Amounts will be reported on a 1042-S form. Scholarship/fellowships funds used by NRA’s to do research outside of the US are not considered “US source income” are exempt from tax and are not reported to the recipient. Because the tax laws surrounding payments to NRA’s is complex, please contact TSS for guidance prior to initiating the paperwork.
A resident alien for tax purposes is an individual who has not been provided permanent residency (green card) however has been present in the US long enough to be treated as a citizen for tax purposes. Read the IRS Substantial Presence Test here: https://www.irs.gov/individuals/internationaltaxpayers/substantial-presence-test