Reporting Your Taxes

Many organizations offer stipends or living allowances rather than wages – and while money in your pocket is money in your pocket, there are some key aspects of stipends which are critical to understand. For more information on scholarships, fellowships, and grants, see the “Scholarships and Fellowship Grants Subject to Chapter 3 Withholding” topic within the Withholding on Specific Income section of Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities. Tax Guide for Aliens, and Form 8233, Exemption from Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual, and its instructions.

• Rules outlined by the Department of Labor (DOL) exist surrounding how stipends can be used by companies and organizations.
• Stipends are subject to withholding when paid to nonresident aliens (NRAs).
• The interpretation and implementation of the tax laws are the domain of the IRS and the courts.

In late February/early March, IIE will send you the instructions and guidelines you will need to file the appropriate paperwork for your U.S.-sourced Fulbright-related grant benefits. Similarly, early in each calendar year, other institutions you may have received payments from in the previous year (host institution, etc.) will send you tax information separately, typically via U.S. mail. Instead, a stipend is often designed to cover certain costs for the worker, such as housing and food. Stipends are not based on number of hours worked, but rather an overall agreement of labor to be completed. They’re usually smaller than an hourly minimum wage, as the money paid is meant to offset expenses rather than to provide a complete living wage. While a normal salary would increase over time, stipend amounts are almost always fixed for the length of a set contract and will not increase over time, or until a new contract is started.

Tax implications on the amount paid to Resident Doctor

In view of author, stipend is ‘capital receipt’ and is  scholarship  for education. One’s residency status determines whether or not the University makes withholdings for federal taxes from this income. My experience is that German tax offices are very fair and reliable in their explanations. It is their legal duty to explain to you whether you have file a tax declaration, and also where in their forms to fill in the stipend iff it turns out to be taxable.

The scholarship or fellowship recipients who are nonresident aliens should generally report the treaty exempt income on Form 1040-NR, Sch OI, item L, line 1(e) and include the amount on line 1(k) of Form 1040-NR. Do not include the treaty exempt amount on line 1a of 1040-NR and/or line 1(r) of Sch 1 (Form1040). Students or scholars from countries that have a tax treaty with the U.S. that includes a scholarship/fellowship article may claim exemption or a reduction of tax withholding if they meet the requirements of the treaty.

Nonresident Alien Who Becomes a Resident Alien

It also aims to orient Fulbrighters to the most common Fulbrighter tax profiles so that you may understand better how U.S. tax law may apply to you. Your IIE advisor, while not certified to give tax advice, can help you understand the components of this guide. For more complex tax matters, Fulbrighters should consult the IRS website (irs.gov) and/or a tax professional. Ultimately, compliance with tax laws and regulations is your responsibility.

In the above backdrop, the said arrangement does not fall under the ambit of professional services, works contract, employment or scholarship to meet the cost of education. The income may be taxed under the head Income from other sources u/s 56(1) as it is not covered under any specific head of income. Further, exemption u/s 10(16) may be claimed is stipend taxable in india to the extent of cost of education as the payment is in the nature of scholarship i.e. stipend. The term stipend refers to a form of compensation that is paid to certain individuals for services rendered, other work, or while they receive training. Stipends are often provided in lieu of or (in some cases) in addition to a regular salary.

Any part of your scholarship, fellowship, or grant that represents compensation for services performed in the United States is subject to graduated withholding. A salary is compensation for work performed and is a set amount, typically per year. A stipend, on the other hand, is not considered compensation for work, but rather monetary support for a variety of possible factors, such as expenses incurred during traveling or during a training period, or to cover certain living expenses. As such, they are often lower than minimum wage and are not regulated by the state but provided at the discretion of the employer. Health and wellness are now an important part of the work-life balance that many employers promote.

And in this case, you’re entitled to receive the minimum wage and any overtime pay, if it applies. On the other hand, employees should ensure they aren’t considered trainees. A stipend is often offered to individuals as a fixed sum and is commonly paid to the recipient as a lump sum payment.

Scholarship and Fellowship Payments to Nonresident Aliens

But remember, the majority of stipends are considered a form of taxable income. For the 2022 tax year, the withholding rate for both programs is 15.3%—12.4% for Social Security and 2.9% for Medicare. However, if you just ask the same questions that you’d otherwise ask the tax office, the tax advisor is a rather expensive alternative.

As mentioned above, stipends are not hourly-based pay and are often used by employers as a lower-cost option to pay interns or to offset the cost individuals bear while executing certain services. As such, stipends can vary depending on the company or organization that pays them. Some companies pay stipends to help cover housing, food, or travel expenses. Therefore, costs incurred during CA training and education is capital costs for development of own human resources. The stipend received is in nature of a financial assistance, grant or subsidy  to meet such capital costs. Therefore, stipend or scholarship received is in nature of ‘capital receipt’.

Nonresidents of the United States will have federal taxes withheld from their taxable fellowship income. Individuals holding the F or J visa are assigned a federal withholding rate of 14%. If one’s home country has an applicable fellowship tax treaty and qualifies for the treaty exemption, the University may be able to reduce or eliminate federal tax withholding from the income.

TAX FILING REQUIREMENTS

Most stipends are considered taxable income so you’ll have to pay the entire 15.3% withholding tax out of your own pocket. There is no hard-and-fast rule about the amount individuals are paid for stipends. The amount an individual receives often depends on the task they are assigned or the expense that is being offset. For instance, a company may pay a trainee $250 for a week’s worth of training or a church may pay a clergy member $1,000 for living expenses. Rules outlined by the Department of Labor (DOL) exist surrounding how stipends can be used by companies and organizations. Stipends cannot be used to hire students to replace existing staff, and the students must be the primary beneficiary of the employment or training—not the company.

Those types of income are taxed differently than taxable scholarship income and could cost you much more in tax. The taxability of stipends in no way alters the relationship between Kirschstein-NRSA fellows and sponsoring institutions. In addition, recipients of Kirschstein-NRSA individual fellowships are not considered to be in an employee-employer relationship with NIH or the sponsoring institution solely as a result of the Kirschstein-NRSA award. The interpretation and implementation of the tax laws are the domain of the IRS and the courts. NIH takes no position on what the status may be for a particular taxpayer, and it does not have the authority to dispense tax advice.

In general, U.S. sourced taxable scholarships, fellowships, and grants that do not represent compensation for services are not subject to withholding when paid to U.S. citizens and residents, but they are subject to withholding when paid to nonresident aliens. A scholarship or fellowship grant is an amount given to an individual for study, training, or research, and which does not constitute compensation for personal services. A scholarship or fellowship grant paid to a nonresident alien (NRA) of the United States may or may not be subject to withholding and/or reporting on Form 1042-S. If the grant is from foreign sources, no withholding or reporting is required. If the source of the income is from the United States, withholding and/or reporting may be required. Whether the scholarship or fellowship is subject to withholding depends on whether the recipient is a candidate for a degree or no degree and what the grant will be used for.

Stipends are commonly offered to researchers at academic institutions or other related organizations to help them focus on their projects. Much like grants, these stipends may be furnished by third parties who wish to see a particular study or form of research advance further without fiscal distractions that may otherwise hamper the researcher. Foundations and comparable entities might also offer stipends on similar terms to support the work of researchers and the projects they are developing. For instance, fringe benefits like parking are only taxable after a certain amount. Be sure to consult with a tax consultant if you’re unsure about the tax implications of your stipend. The following sources of taxable income are typically experienced by Fulbright Visiting Scholars.

Training Calender

So it’s only natural that a lot of companies also offer stipends for employees that can be used for a variety of fitness expenses, such as gym memberships, yoga classes, or even personal trainers, as part of a wellness program. Interns, apprentices, fellows, and clergy are common recipients of stipends. Rather than being paid for their services, they’re given stipends to provide financial support while they engage in the service or task at hand. A stipend often includes other benefits, such as higher education, room, and board.

Major part of compulsory training can be provided only by Chartered Accountant in practice. There is also provision for industrial training for a part of total training which can be availed on satisfaction of certain conditions. I wanted to know whether I’ll have to pay income tax for the stipendiary income. Each year roughly 850 faculty and professionals from around the world receive Fulbright Scholar awards for advanced research and university lecturing in the United States. To start, I am not a lawyer, no expert on taxation, or the like, but got a tax-free scholarship in Germany many years back. Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

A scholarship/fellowship used for expenses other than qualified expenses is taxable income. Taxable scholarships/fellowships are generally referred to as stipends and are payments for which no services are rendered or required. Examples of stipends are payments that can be used for living and incidental expenses such as room and board, travel, non-required books and personal computers, etc. The granting department is responsible for correctly determining the amount, which should be classified as a stipend, but such determination is always subject to review and reclassification by the Tax Department.

Please obtain the estimated tax publications below in order to assess whether or not you will need to make estimated quarterly tax payments. While it’s always a good idea to get tax advice from an expert if you’re unsure, the basics of stipends and tax returns are available on irs.gov. You can find specific information about fellowship and other grants here, which explains how stipend receivers should fill out their 1040 tax forms. Keep in mind that money from a stipend isn’t classified as 1099 or W-2 income, so don’t report it in that way, or you could be taxed too much.