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Author: Canuck73 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121144  
Subject: Tax Strategies for Alien Grad. Student! Date: 7/9/1998 12:36 PM
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If anyone could help me with this unique tax situation, that would be great!

I am a nonresident alien, attending a private graduate school in the U.S. The school provides full tuition funding and a stipend to cover one's living expenses. We aren't required to do extra work (like teaching assistantships) to ge the stipend, it is automatic with admission.

So, at the end of every month, I get a check for the stipend. No taxes, medicare, anything are taken out of it (except for a student activity and parking fee). The school for some reason does not report this to the IRS via some legal loophole. Therefore, we get no W-2 for tax purposes.

I'm a full-time student and take in no other income. On the 1040NR (non resident) tax form, there is a unique line where it asks how much was received in scholarships and fellowships. I have no choice but to report. Many of my US classmates, however, do not report....no such line on the regular 1040.

I believe that the stipend is fully taxable, but we all debate this. Anyone know for sure?

Should I be paying my taxes out over the year or will I be penalized if I pay one "lump sum" in April (ouch!).

Thanks in advance!
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4406 of 121144
Subject: Re: Tax Strategies for Alien Grad. Student! Date: 7/10/1998 5:39 PM
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[[I am a nonresident alien, attending a private graduate school in the U.S. The school provides full
tuition funding and a stipend to cover one's living expenses. We aren't required to do extra work
(like teaching assistantships) to ge the stipend, it is automatic with admission.

I believe that the stipend is fully taxable, but we all debate this. Anyone know for sure? ]]

I may not be able to cover your specific issue, but let me provide you with some information that may allow you do answer your own question, given your knowledge of the facts and circumstances.

In general, scholarships and fellowships for tuition and related costs are tax free, but there are some rules and exceptions.

First, the individual receiving the scholarship must be a degree candidate at an 'educational institution.' That is, the school must maintain a regular faculty and curriculum with an enrolled body of pupils in attendance. Thus, for example, correspondence schools would not qualify. Technical or vocational schools can qualify with proper accreditation.

Second, the payments cannot be linked to services to be provided by the student. Thus, for example, to the extent the payment is for the individual's work as a teaching assistant or researcher it's taxable income.
But in your post, you specifically state that you are NOT required to perform services. So it is possible that these payments are actually NOT taxable. But read on...

Third, only payments for tuition and 'related expenses' qualify as tax free. Related expenses include fees, books, supplies, and equipment required of all students in the particular course. Thus, for example, if a word processor were recommended but not required, buying one would not be a 'related expense.' Other expenses which do not qualify include the cost of room and board, travel, research, and clerical help. To the extent the scholarship is used for nonqualifying items, it is taxable.

The above rules apply whether the scholarship is in the form of a direct payment to the individual or is a tuition reduction award.

So your best bet would be to deal with the financial people at the school for a more "formal" interpretation of the payment of the funds and the taxable portion (if any) thereon. It is likely that if the payments were taxable, that you would actually be receiving some type of tax form at the end of the year. But each case is subject to interpretation. So you best bet is to check it out and make a determination based upon your facts and circumstances, and what you find out from the financial people.

[[ Should I be paying my taxes out over the year or will I be penalized if I pay one "lump sum" in April
(ouch!).]]

If you find that the payments that you receive ARE taxable, check out my post in the Taxes FAQ area for additional discussion on estimated tax payment requirements, penalties, and loopholes.

TMF Taxes
Roy

SPECIAL NOTE: Remember that this response is not the "last word" on your situation. It is really only a starting point. Make sure to review the "Read This First" post
(http://www.fool.com/School/Taxes/TaxesDisclaimer.htm) for additional information. In addition, many of your questions may already be referenced in the Taxes Frequently Asked Questions area. In order to visit the Taxes FAQ area, go to the Fool's School area (http://www.fool.com/school.htm) and check out "Other Features" in the list box, OR you can jump directly to the Taxes FAQ area (http://www.fool.com/school/taxes/taxes.htm). Additionally, if any references were made to the IRS Web Site, you can get there by pointing your web browser to (http://www.irs.ustreas.gov).

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