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 and health insurance. These fees are considered non-taxable to the Internal Revenue Service.
Nonqualified Scholarship
A nonqualified scholarship is an amount of scholarship or financial aid that exceeds the cost of tuition and health insurance and is required to be taxed at 14% or 30% per IRS regulations. You may qualify for a tax treaty to reduce down the ITAX charge if one is available. We will determine that during our meeting, however, in order to be eligible for a tax treaty exemption you must be employed and have a U.S. Social Security Number, but that still doesn't mean a tax treaty exists between the US and the country you live in.
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 Amount 43,765.00
Qualified Expenses:
32,615.00 Cost of Tuition
1,429.00 Cost of Health Insurance
34,044.00 Total Qualified Expenses
43,765.00 Total Scholarship
- 34,044.00 (minus) Total Qualified Expenses
9,721.00 Income to be Taxed
9,721.00 Income to be Taxed
x 0.14 (multiplied by) 14%
1,360.94 ITAX for fall semester that has been charged on your student bill (and again, for the spring semester)
