Information on Taxation of University of Minnesota
Non-compensatory Student Stipends
A scholarship/fellowship payment that is made without any regard for services rendered is non-compensatory. The primary purpose of the non-compensatory payment is to support the study or research that furthers the education and training of the recipient. Neither the fact that the recipient is required to furnish progress reports, nor the fact that the results of the recipient’s studies or research may be of some incidental benefit to the University, by itself, will be considered to destroy the essential character of the payment as non-compensatory. Non-compensatory payments are not wages and do not create an employer-employee relationship. Non-compensatory payments are taxable income to the recipient, except for the portion of these funds used for tuition, books, fees, equipment, and supplies required for the courses being taken. The recipient is responsible for tracking the costs of tuition and other required university fees, books, supplies, equipment, and similar expenses.
Payments to US Citizens and Residents for Tax Purposes
The University is not required to report non-compensatory payments to the recipient or the Internal Revenue Service (IRS), so the recipient will not receive a W-2 or 1099 listing the non-compensatory payments received. Because the payments may be taxable income, however, recipients should collect relevant information on payments received and eligible expenses for offset throughout the year in order to be able to identify any taxable income. Generally, no taxes are withheld, so recipients may need to make estimated quarterly tax payments to the IRS using Form 1040-ES.
If you file Income Tax Return Form 1040EZ:
- Include the taxable amount of your non-compensatory payment on Line 1.
- Print “SCH” and any taxable amount not reported on a W-2 form in the space to the right of the words “Forms(s) W-2” on Line 1.
If you file Income Tax Return Form 1040A or Form 1040:
- Include the taxable amount on Line 7.
- Print “SCH” and any taxable amount not reported on a W-2 form in the space to the left of Line 7 on Form 1040A or on the dotted line next to Line 7 on Form 1040.
How to file federal estimated income tax withholding information is contained at http://humanresources.umn.edu/pay-and-taxes/tax-information-non-service-fellowships.
Payments to Nonresident Alien Recipients
Nonresident alien recipients of non-compensatory payments may be subject to federal tax withholding. The University is required to report information annually to the recipient and the IRS on Federal Form 1042-S. The fellowship recipients should collect relevant information on payments received and eligible expenses for offset throughout the year in order to be able to identify any taxable income. The recipient is responsible for filing a nonresident tax return (1040-NR or 1040-NR-EZ) on which a refund of any excess taxes withheld may be claimed. Additional information from the Humans Resources website for nonresident aliens is available at this link: humanresources.umn.edu/pay-and-taxes/scholarship-fellowship-payments-nonresident-aliens.
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Additional information at irs.gov:
- IRS Topic 513 - Educational Expenses
- Publication 519 – U.S. Tax Guide for Aliens
- Publication 901 – U.S. Tax Treaties
- Publication 970 – Tax Benefits for Education