If you’re a graduate student, a Fulbrighter, a BAEF fellow or the recipient of any other scholarship/fellowship in a research based program and you don’t know sh** about taxes…this post is for you!
*Please be aware that this post regards the 2016-2017 tax season. While the rules are unlikely to change, always confirm that you are following the most uptodate rules by confirming the tax code via the IRS website.
*I am not an accountant but I have provided direct links (in green) to the IRS website stating ALL of the information provided in this post.
*I am providing the information that I am aware of. There may be more loopholes, other forms, credits, exclusions, etc. that you can apply for. Please share them with me in the comments if you have additional information!
You must report your income, period. Go to the bottom off this post for a brief summary.
Rules of Thumb:
- Graduate student stipends are taxable. Don’t play yourself. Budget 20% of your income to be safe.
- Fulbright and BAEF grants are taxable.
- For both Fulbright and BAEF grants, there is no tax liability to Belgium. I received this information directly from the Fulbright and BAEF offices. I vaguely remember reading online that Belgium and the U.S. have some non double taxation treaty. Look it up for yourself, sorry, I’m being lazy about finding the link :).
- In general, if you are a degree candidate AND the funding you receive from Fulbright/BAEF/Grad School is used for qualified educational expenses (tuition, fees, required text books for a class, things of that nature) that portion of your grant is tax free. You can deduct these expenses from your taxable income.
- If however, under the above circumstances, your Fulbright/BAEF/Grad School funding is used for living expenses (housing, food, transportation, etc.) those are NOT qualified educational expenses and ARE SUBJECT TO INCOME TAX.
- Lastly, if you are NOT in a degree granting program, you are not eligible to exclude ANY portions from your Fulbright/BAEF/Grad School grant. That means even if you had to pay for things that would classify as qualified educational expenses, registration fees, tuition, etc.; your entire Fulbright/BAEF/Grad School income is subject to U.S. income taxes.
- Graduate students do not report money that goes towards tuition and fees because we never touch nor see that money. However, graduate stipends for living expenses, ARE subject to income taxes. Yes, your entire graduate student stipend (that is not used for qualified education expenses while you’re a degree candidate) is subject to U.S. income taxes (you will owe money to the Federal government, AND any state you receive income, unless that state is Texas…ya lucky ba——!).For example, I owe Federal Taxes and Michigan Taxes because I was employed in Michigan and received a graduate student stipend from Michigan.
Now that that’s out of the way… let’s start the party!
Filling Taxes as a Fulbright Grantee:
According to the IRS website:
- if you are a Fulbright ETA, your grant is classified as wages/tips/salaries; you may be eligible to apply for foreign income exclusion through Form 2555. Form 2555 allows you to deduct airfare, lodging, utilities, and other expenses from your taxable income!!!
In order to be eligible for foreign income exclusion with Form 2555, you must pass the LINK: bona fide residence test or the LINK: physical presence test.
- if you are a Fulbright student researcher, your Fulbright grant is classified as a fellowship; you are NOT eligible for foreign income exclusion.
- regardless of how you report your income, if you pay taxes to another country you can also apply for a foreign tax credit by filing Form 1116.
Don’t take my word for it, check out the LINK: IRS website for yourself! Everything I listed above is summarized directly from the IRS website.
(An accountant recommended I look into filling Form 2106… not sure why they recommended that as it was not applicable to me. Essentially this form allows you to exclude employer related expenses from your income…I think. This form may be useful for grantees who are teachers, post-docs, but not for student researchers.
Under no circumstances can Fulbright nor BAEF be considered “your employer.” Also, keep your visa status in mind. I wouldn’t suggest taking advantage of employee exemptions/credits/etc. if you’re on a student visa, for example. Those are my 2 cents).
How to Report Your Scholarship/Fellowship Income:
Form 1040: U.S. Individual Income Tax Return (Federal)
- Line 7 is listed as wages/tips/salaries (from a W-2 for example). Line 21, listed as “other”, is where you list the total amount you received in scholarships/fellowships and write the code SCH (for scholarship?) next to it.
- Line 21 is where you list your Fulbright grant in USD. I kept track of the USD:EUR conversion rate through Transferwise per grant payment.
For example: If I received a grant payment on 9/21/17, I used the conversion rate for that day. If I received a grant payment on 10/21/17, I used the conversion rate for that day. Etc.
- Line 22 is your total income: you’ll add all sources of income (lines 7-21).
- The line numbers above correspond to a 2016 1040 Tax form. Be sure to check you are listing the income with the appropriate title as tax forms may change.
- As a part-year resident in Michigan, I had to file a Part-Year Schedule form and list all my sources of income. I reported my income from the Fulbright, BAEF, my graduate student stipend from the University of Michigan, and my W-2. I also had to file Schedule 1 (Additions and Subtractions) to subtract my foreign income so that I would only pay Michigan taxes on income solely attributed to Michigan.
Overall, I ended up owing ~$3,000.00 total in taxes, about $1,500 each for Federal and State taxes.
- Scholarships and Grants must always be reported and may be subject to income taxes.
- Fulbright and BAEF grants/Graduate student stipends are taxable unless you are a degree candidate AND the money is used for qualified educational expenses which is clearly defined on the IRS website.
- If you’re a Fulbright ETA you may be able to exclude your foreign income through form 2555. Form 2555 allows you to deduct airfare, lodging, utilities, etc. from your taxable income!
- If you’re a Fulbright student researcher, you canNOT exclude your foreign income through Form 2555.
- Budget 20% of your income to taxes, whether or not you think you’ll owe taxes
- If you pay taxes to a foreign country, you may be eligible to apply for a foreign tax credit through Form 1116.
- I know nothing about Form 2106, but if you have an employer…look into it?
LINK: IRS Reference: Scholarships, Fellowship Grants, and Other Grants
You must pass the LINK: bona fide residence test or LINK: physical presence test to file for Foreign Income Exclusion through Form 2555.
I hope this post helps and leaves you feeling empowered! Let me know if you have questions or tips!