Bursar Office

Scholarship / Fellowship Taxes

A scholarship is an amount paid or allowed to, or for the benefit of, a student, whether an undergraduate or graduate, to aid such individual in pursuing his studies. A fellowship is an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research.

A scholarship or fellowship payment received by a candidate for a degree at UT Dallas is generally not taxable income to the student if it is used for “qualified education expenses.” Qualified education expenses are defined by the Internal Revenue Service (IRS) and are amounts paid for tuition, fees, and other related expenses for a student that are required for attendance at UT Dallas. Generally speaking, “qualified education expenses” are those amounts for which UT Dallas must receive payment before allowing the student to enroll in classes.

A scholarship or fellowship used for expenses other than “qualified education expenses” is a nonqualified scholarship or fellowship, which is taxable income to the student. If a part of the scholarship or fellowship has been used for nonqualified education expenses, this portion of the scholarship or fellowship is considered a nonqualified scholarship or fellowship and is subject to income tax.

Some examples of nonqualified education expense are:

  • Room and board
  • Travel
  • Research
  • Insurance
  • Medical expenses
  • Clerical help
  • Transportation
  • Equipment or other expenses not required for attendance at UT Dallas

For U.S. citizens, lawful permanent residents (Green Card holders), and resident aliens for tax purposes, a nonqualified scholarship or fellowship is self-reported on the annual income tax return. UT Dallas is not required to report nonqualified scholarship and fellowship amounts on a Form 1099 or other tax reporting document and federal income tax is not withheld on the nonqualified scholarship and fellowship payments. It is the responsibility of the student to keep the necessary records to report the nonqualified scholarship and fellowship amounts on the student’s individual income tax return. It is advised that the students contact their tax advisor regarding the self-reporting and tax consequences.

The scholarship or fellowship recipient who is a nonresident alien student will be contacted by the Tax Compliance Office after the Census day to complete the required tax compliance process. The tax compliance process analyzes the student’s tax residency status, tax withholding rate, eligibility for tax treaty benefits, and generates necessary tax forms for the student to sign. Once the student completes the tax compliance process, the Tax Compliance Office will post a charge called “Non Resident Tax” to the student’s Bursar account to reflect the applicable federal income tax withholding amount.

A nonresident alien student is subject to federal income tax withholding for a nonqualified scholarship or fellowship if:

  1. The student is considered a nonresident alien for tax purposes, and
  2. The tax treaty benefits between the student’s tax residency country and the U.S. are not available for the nonqualified scholarship and fellowship payments.

A nonresident alien student is exempt from federal income tax withholding for a nonqualified scholarship or fellowship if:

  1. The student is considered a resident alien for tax purposes, or
  2. The student is considered a nonresident alien for tax purposes and can claim tax treaty benefits between the student’s tax residency country and the U.S. for the nonqualified scholarship and fellowship payments.

A nonqualified scholarship or fellowship is subject to federal income tax withholding at a rate of 14% for nonresident aliens for tax purposes under a J-1 or F-1 visa. For nonresident aliens for tax purposes under any other type of visa, a nonqualified scholarship or fellowship is subject to federal income tax withholding at a rate of 30%. UT Dallas is required to report nonqualified scholarship and fellowship amounts received by a nonresident alien for tax purposes on Form 1042-S.