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.
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.