ITAX -- Taxation of a Scholarship/Fellowship on a Student Account
All amounts paid to nonresident aliens in the form of scholarships, fellowships, grants, and financial aid, which are not excludible from gross income as a "qualified scholarship" under I.R.C. 117 must be reported to the IRS, regardless of the amount paid, unless the grant is from sources outside the United States.
Qualified Scholarship
A qualified scholarship is an amount received as a scholarship grant that covers tuition, fees, books, supplies and equipment required for instruction at the education institution.
Nonqualified Scholarship
A nonqualified scholarship is an amount issued for any other purpose, including travel, room, board, research, etc. This amount is subject to 14% or 30% federal tax withholding, depending on visa status. A tax treaty may apply that would make this exempt from taxes.
The taxable (nonqualified) portion of a scholarship or fellowship paid to an NRA in F-1, J-1, M-1, Q-1 or Q-2 is subject to Federal income tax withholding at the rate of 14%.
On a student bill the 14% taxation is charged as "ITAX." This money is then paid to the IRS by the Office of International Taxation. The student will receive a Form 1042-S once the tax year has closed (usually in February of the following year) stating the amount of the scholarship and the amount of ITAX tax paid. The student uses this form to file a Form 1040NR-EZ with the IRS.
Calculation Example -- Per Semester Charges
- Total Scholarship: $21,735.00
- Cost of Book Allowance for Undergraduate Student: $525.00 (or $105.00 per class x 5 classes)
- Cost of Health Insurance: $564.00
- Cost of Tuition: $18,805.00
- Total Qualified Scholarship: 525 + 564 + 18,805 = $19,894.00
- Total Unqualified Scholarship: 21,735 - 19,894 = $1,841.00
- Formula: 1,841 x .14 = $257.74
- ITAX for one semester is $257.74
