Fellowships and Scholarships
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Fellowship and scholarship grants that are paid with funds that have come from the foreign visitor's country of residence (or another country outside of the United States) are considered to be "sourced" in a foreign country and foreign source funds are not subject to U.S. income tax.
If a student has a fellowship/scholarship from a U.S. source (such as Indiana University or a U.S. government agency), some part of the income may be taxable. Non resident alien students who receive who receive this type of income may be subject to tax withholding. IU uses the following procedure to determine the amount that is subject to withholding:
- Add up all awards based on U.S. (including IU) funds. Result is the total award.
- Add up tuition paid, required fees paid (including technology fee, student health fee, activity fee, and mandatory student health insurance cost), and $424/semester for books. The result is total qualified expense.
- Subtract total qualified expense (#2) from total award (#1). Any positive remainder is defined as non-academic support and is considered taxable income. For individuals on F, J, M, and Q visas, taxes are withheld at the rates of 14% (federal), and 3.4% (state) on the remainder only (the non-academic support). For individuals on any other visa status, taxes are withheld at the rates of 30% (federal) and 3.4% (state).
Tax withholding charges are posted to students' bursar accounts daily. Any change in scholarship/fellowship received or qualified expenses paid may result in an increase or decrease of the tax withholding charges.
See How to Apply for Tax Treaty Benefits for information on claiming a tax treaty exemption.
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