Students and Taxation

Scholarships and Fellowships

Section §117 of the Internal Revenue Code excludes scholarship and fellowship awards from taxation provided they are used to directly pay for education (tuition, required fees, books) . Tax exemption only applies to degree candidates.

Any payments received for teaching, research or other services are considered to be compensation, and are taxable to the recipient.

Withholding on Scholarships and Fellowships

The IRS has no tax withholding requirements or reporting requirements of schools that issue scholarships/ fellowships to US citizens and residents. The recipient of the award is solely responsible for determining taxability of the award.

Payments to nonresident aliens are subject to §1441(a) which requires tax withholding of 30%, where a tax treaty is in place between the student’s host country and the US. The withholding amount may be reduced or eliminated depending upon the terms of the treaty. Other qualifying factors may affect withholding requirements, including foreign source of the award; type of visa held by the student and type of organization that awards the grant.

The following IRS Publication addresses the details of Scholarships/Fellowships as well as other matters concerning tax benefits and requirements related to education.

http://www.irs.gov/pub/irs-pdf/p970.pdf

The following IRS topic addresses scholarships and fellowships paid to nonresident aliens

http://www.irs.gov/Individuals/International-Taxpayers/Withholding-Federal-Income-Tax-on-Scholarships,-Fellowships,-and-Grants-Paid-to-Aliens 

resources for Georgia Tech students and their families

IRS Information on Educational Tax Benefits https://www.irs.gov/pub/irs-pdf/p970.pdf

Georgia Tech Bursars FAQ’s Form 1098-t http://www.bursar.gatech.edu/content/1098-t-faq