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Fellowship/Scholarship Tax Overview

NOTE: This information is not intended as a substitute for professional tax counseling or for reading relevant Internal Revenue Service and California Franchise Tax Board publications.

The Internal Revenue Service (IRS) and the California Franchise Tax Board (FTB) consider graduate fellowships/scholarships taxable income. Salary received for performing services, such as teaching and research, is not included in the “fellowship/scholarship” category. 

The amount of fellowship/scholarship used to pay “qualified educational expenses” is exempt from Federal and State income tax. These include: 
  • Tuition and fees
  • Text books purchased from the campus bookstore
  • Course required fees

The amount of fellowship/scholarship used to pay “nonqualified expenses” may be subject to Federal and State income tax. These include: 

  • Housing
  • Transportation & Parking
  • Meals & entertainment
  • Cash or cash equivalents paid directly to the recipient of fellowship/scholarship income.
  • Housing,  transportation,  parking,  meals  & entertainment  paid through BANNER are constructively received as cash equivalents; therefore, are subject to income tax.

U.S. citizens, U.S. permanent residents, asylees, and/or refugees do not have income tax withholding requirements on their fellowship/scholarship awards. Instead, they must make quarterly estimated tax payments to the IRS and FTB, as needed. 

Nonresident aliens receiving nonqualified fellowship/scholarship payments will have federal income tax withheld from the payment. 
  • GLACIER information is required and the GLACIER Tax Summary Report must be submitted with necessary immigration documents before you are paid.
  • Submit documentation to UCLA or to our Tax Services office (see the GLACIER Tax Summary Report for instructions)
  • Tax treaty documents submitted to UCLA may reduce or eliminate tax withholding.
All individuals receiving stipend support must also provide information on California tax residency. The FTB does not conform to the IRS rules and does not honor Federal income tax treaties with other countries. California tax residency has no relation to UC tuition residency. UC Merced does not withhold State income tax; therefore, recipients of nonqualified fellowship/scholarship payments may be required to make quarterly estimated tax payments to the FTB. It is your responsibility to ensure that we have the correct Federal and California residency information for you. 
If you have questions, please contact our Tax Analyst, Jennifer Di Salvo by phone at (209) 228-4367 or by email at jdisalvo@ucmerced.edu. For more information on fellowship/scholarship income, please refer to the publications listed below, or consult with a tax advisor. 
 

IRS PUBLICATIONS 
To order: 1-800-TAX-FORM or online at http://www.irs.govĀ 

FOR US CITIZENS AND PERMANENT RESIDENTS: 

Pub 17, Your Federal Income Tax 
Pub 505, Tax Withholding and Estimated Tax 
Pub 970, Tax Benefits for Education 
Form 1040-ES, Estimated Tax for Individuals 
Form 2210, Underpayment of Estimated Tax by Individuals 

FOR NON-RESIDENT ALIENS: 

Pub 17, Your Federal Income Tax 
Pub 505, Tax Withholding and Estimated Tax 
Pub 515, Withholding of Tax on Nonresident Aliens and Foreign Entities 
Pub 519, US Tax Guide for Aliens 
Pub 901, US Tax Treaties 
Pub 970, Tax Benefits for Education 
Form 1040-ES, Estimated Tax for Individuals 
Form 2210, Underpayment of Estimated Tax by Individuals 

STATE PUBLICATIONS 
To order: 1-800-852-5711 or online at http://www.ftb.ca.gov

FOR ALL INDIVIDUALS: 

FTB Pub 1031 Guidelines for Determining Resident Status 
FTB Form 5805 Underpayment of Estimated Tax by Individuals and Fiduciaries FTB Form 540-ES, California Estimated Tax for Individuals