The Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) consider graduate fellowships taxable income to the recipient and, therefore, students may be required to complete various tax forms depending on their individual situation and they are required to file a tax return(s) with the appropriate agency each year. Fellowships may include payment of fees; non-resident supplemental tuition; or stipends. However, a portion of a fellowship may be excludable from gross income.
For students pursuing a degree who are receiving fellowship support, that income can be divided into two distinct categories:
Qualified scholarship or fellowship – Fellowship payments for fees and/or non-resident tuition are not subject to tax reporting.
Non-excludable stipends – Stipend payments are considered taxable income and are not excludable. However, amounts spent in the calendar year for fees, books, supplies and equipment that are required of all students enrolled in the course(s) in which the student is enrolled may be excludable.
- Each student’s tax situation is different and students are encouraged to consult a tax professional if unsure which items (if any) may be appropriate to exclude. In some cases audits that find a student filed incorrectly conclude that students miscalculated excludable expenses.
- The tax year (the calendar year) and the academic year are very different. Students should only report the fellowship income paid during the tax year. Students should not report the full amount of their academic year fellowship if it extends into the next tax year.
- Any salary payments received from employment as a Teaching Assistant/Associate, Reader, Tutor, Graduate Student Researcher or Graduate Student Assistant Researcher are not included in the category of “qualified scholarship”. Employment income is “salary and wages” income.
U.S. citizens and Permanent Residents do not have Federal taxes withheld from their stipend payments, and the University is not required to report this income to State or Federal tax agencies; the University also does not issue a W-2 equivalent to students for reporting fellowship stipend income. Students who are U.S. citizens or residents may be required to make estimated quarterly tax payments as necessary to the IRS and/or the FTB on stipend income. Students should refer to the tax publications listed below in order to assess whether or not they will need to make estimated quarterly tax payments. Students are responsible for keeping accurate records and for filing the appropriate tax returns with State and Federal tax agencies.
Non-U.S. citizens who receive fellowship stipend payments from the University are required to complete and submit certain tax-related documents each calendar year in which fellowship stipend income is received. This is done through the campus Glacier Tax Compliance System and must be completed before the University may issue such payments. Documentation is required in order for the UCI Accounting Office to properly document to the Internal Revenue Service (IRS), the actual fellowship stipend income that international graduate students receive during the calendar year, and to provide nonresident alien recipients of fellowship income with a correct Form 1042-S end-of-year Statement of Earnings report. Students’ academic departments will notify them when they are required to submit this documentation; however it would be wise for students to know general U.S. tax information at this time.
For nonresidents of the United States who receive stipend payments, U.S. law requires that Federal taxes be withheld from those stipend payments. Students may be exempt from Federal tax withholding if their country of citizenship has a tax-treaty with the United States. Foreign students, like U.S. students, are responsible for filing the appropriate tax returns with both State and Federal tax agencies.
Additional information on U.S. Federal taxes is available at the Internal Revenue Service (IRS) website. Some IRS publications of interest to students are Pub. 17, Your Federal Income Tax (For Individuals); Pub. 970, Tax Benefits for Education; Pub. 901, U.S. Tax Treaties; Pub. 519, U.S. Tax Guide for Aliens. Tax information for the State of California is available at the Franchise Tax Board website.
Note: This information is not intended to be all-inclusive and is not a substitute for professional/government tax counseling or for reading relevant Internal Revenue Service and California Franchise Tax Board publications.