Paid to study, or paid to work?
The threshold question that must be answered before a payment may be considered a non-taxable scholarship, fellowship or grant is this - is the student being paid to study or paid to work?
The answer to this question depends on each individual situation, but hinges on whether the student's activities are primarily to further the student's education and training, or whether the University is the primary beneficiary of the student's activities. Some key questions to ask are:
- Does the University control or direct the student's activities?
- Is the payment consideration for past, present or future services of the student?
- What are the benefits derived by both the student and the University as a result of the student's activities?
- Is the student doing work that an employee would be doing if the student was not?
The answers to these questions will determine the treatment of the payment. It may be all scholarship, fellowship or grant; all compensation for services; or some combination.
Nonresident Alien Recipients
Nonresident alien recipients of scholarships, fellowships or grants may be subject to federal income tax withholding on the portion that is taxable. The tax rate is generally 14%, but may be reduced under an income tax treaty. Contact the Payroll Department for further information.
For more information on Scholarships and Fellowships, please review IRS Publication 970 at https://www.irs.gov/pub/irs-pdf/p970.pdf.