International Taxes

Scholarship Withholding Tax is required of every student attending classes who meets all three of the following conditions:

  • Present in the United States on an F-1 or J-1 VISA.
  • Receives scholarships from U.S. sources that exceed the costs of tuition and fees.
  • Resides in a country which has no tax treaty with the United States to exempt this tax [proper forms must be completed for exemption].

In order to reduce this tax as much as possible, Mercer calculates withholding tax for student scholarships as required by the Internal Revenue Service using the “alternate withholding method” described below:

Treasury Regulation section 1.1441-4(c)(2) and Revenue Procedure 88-24 provide an alternative withholding procedure for withholding tax on scholarships and fellowships paid to recipients in F-1, J-1, M-1, Q-1,or Q-2 nonimmigrant status. The alternative procedure involves withholding tax at the same graduated rates that apply to wages, instead of using a flat 14%. It also provides for deduction of the personal exemption amount and certain away-from-home expenses (if applicable) when computing which portion of a grant is taxable and subject to withholding. This alternative withholding procedure may be used at the option of the withholding agent and is not mandatory.

https://www.irs.gov/individuals/international-taxpayers/reduced-withholding-on-scholarships-and-fellowships-alternate-withholding-procedure

As the payer of the scholarship/fellowship income, Mercer University has regulatory authority to allow a deduction for the personal exemption amount even though you have not filed any form to claim the personal exemption amount.

--The 1042S form is to be used when filing your tax return.

--The next Scholarship Tax posting will occur mid to late January for the 2018 tax year.