NOTE: The information below is for U.S. citizens and resident aliens.
International students should refer to UA’s International Tax website.
Generally, under the tax laws, scholarships, fellowships, or grants are tax free to the extent the funds are used for qualified expenses.
Qualified expenses include:
- Tuition and fees required to enroll at or attend an eligible educational institution; and
- Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution.
Any portion of a scholarship, fellowship, or grant used for nonqualified expenses such as room and board, travel, research, medical insurance, optional equipment, etc. could be included in your taxable income for the year. However, as a general rule, UA is not required to withhold taxes on these amounts.*
Recipients of such funds should make a determination as to whether the funds are taxable, taking into account all such amounts received for the year. The taxability of scholarships, fellowships, and/or grants are based upon each person’s individual facts and circumstances. To the extent that you determine that a portion or all of the funds are not subject to tax, you should retain receipts, cancelled checks, and other documents to show the total amount of your qualified expenses.
If any portion of the scholarship, fellowship, or grant is payment for services, these amounts will be paid as wages through Payroll, subject to tax withholdings and reported on Form W-2 at the end of the year.
*For other taxable scholarship, fellowship, or grant amounts, where no taxes are withheld, you may need to make estimated tax payments, depending on your individual circumstances. For additional information on estimated tax, refer to Publication 505, Tax Withholding and Estimated Tax, and Do You Have to Pay Estimated Tax?
This information only introduces you to the possible tax consequences of scholarship, fellowship, or grant amounts; therefore, you should contact your personal tax advisor with any questions or concerns. You also may find the IRS Pub. No. 970, Tax Benefits for Education, or the IRS Interactive Tax Assistant (ITA) helpful with regard to the tax treatment of the scholarship, fellowship, or grant amounts you received.