Scholarships for Non-Resident Alien Students

John P. Kruczek, University Controller

Scholarships paid to non-resident alien students are subject to different tax laws and rules than scholarships paid to other students. The university is required to withhold taxes from and/or report these scholarships to the Internal Revenue Service (IRS). To comply with these requirements University Tax Services of Finance & Accounting must analyze, beginning with the spring 1999 semester, all scholarships to be paid to alien students before any money is disbursed. These scholarships will be paid through University Disbursement Services and not through University Financial Services. It is important, however, to continue to report these scholarships to Student Financial Affairs on a Scholarship Notification Document.

University Tax Services will determine the amount, if any, to be withheld from each scholarship. As a general rule, 30% must be withheld on U.S. source payments to nonresident aliens. However, scholarship recipients studying in a degree program and in the U.S. under an F, J, M, or Q visa status are eligible for a reduced withholding rate of 14%. If the university takes the student’s tuition from the scholarship, this portion of the scholarship is considered qualified and is exempt from withholding. Each scholarship will also be analyzed for a potential tax withholding exemption due to a tax treaty. If a tax treaty exemption applies, an IRS form 1001 will be provided by University Tax Services, located in Room 104 Tigert Hall.

A Foreign National Tax Information Form (attached) should be completed by the scholarship recipient and the department awarding the scholarship as soon as possible to avoid any delays in disbursing the aid to the student. This form should be sent to University Tax Services at PO Box 113202 for processing. The information on the form will be analyzed and the applicable tax forms as well as the amount to be withheld will be sent back to the awarding department. These tax forms must be completed and sent to University Disbursement Services in order to pay the student. Separate Payment Authorization Forms should be used to pay the student’s tuition from the scholarship, to disburse the scholarship to the student net of tuition payment and taxes, and to pay federal income tax to be withheld, if any. University Disbursement Services also requires:

A copy of the analysis performed by University Tax Services;
A copy of the scholarship recipient’s I-20 or IAP-66, visa, and I-94 card;
The scholarship memorandum of understanding and award letter;
A completed DBF-BP-5, Reduction or Exemption from Withholding form;
A copy of the completed Foreign National Tax Information Form; and,
IRS Form 1001, if a tax treaty exemption applies.

If part of the scholarship is taxable it is permissible to “gross-up” or increase the amount of the scholarship to offset the taxes withheld. If the scholarship is paid from a research grant, a copy of the grant must be provided showing that the scholarship is authorized by the grant. Grant funded scholarships over $500 must first be approved by Contract & Grant Accounting Services. If you have any questions concerning completing the Payment Authorization Forms or necessary back-up documentation, please call Dorothy Dykes at 392-1241. If you have any questions regarding these forms or the tax status of the scholarships please call Barbara Fuentes or Steve Sauls at 392-1324.