Chapter 5 – Federal and State Income Tax on Fellowships and Scholarships
5.1 Withholding Required
The University is required by law to withhold federal and state income tax on salaries, wages, and other compensations paid. The tax is regularly deducted from payments made to graduate assistants, research assistants, research associates, research technicians, and the like.
5.2 University Position
- Appointments supported by federal grants and contracts:
- Tax is withheld from payments to all research assistant appointments and postdoctoral fellows.
- Tax is withheld from payments to all research appointments and postdoctoral fellows on grants and contracts.
- All other University appointments:
- Tax is withheld from payments to all new appointments as research assistants and postdoctoral fellows.
- Tax is withheld from payments to all University-supported research assistants and postdoctoral fellows.
- Amounts paid as scholarships, traineeships, or fellowships used for tuition and related expenses, and not as payment for teaching, research, or other services rendered by the recipient are exempt from the withholding of taxes unless the recipient is a nonresident alien. Then special percentage withholding (currently 14 percent) must be deducted, unless there is a tax treaty with the home country with articles pertaining to fellowships. Such amounts are also excluded from Federal Form W-2.
Scholarship or fellowship grants are not tax exempt to the extent such payments are for teaching, research, or other services that must be performed by the students as a condition for receiving the qualified scholarship.
- In the case of faculty stipends paid from other than state appropriated funds, and certified by the faculty member and the dean as grants of fellowships for which no services are required to be rendered, advice should be sought from the University Payroll Office.