Taxable Income and Filing Information
Scholarship Awards and Taxable Income
Important Financial Information for International Students
Everyone who earns income in the United States must pay taxes. Scholarship award money and money earned from work are considered income and are taxed. A tax is a fee charged by the government to finance government expenses. One of the most important uses of taxes is to finance public goods and services. The following information explains how this law affects international student scholarship award recipients.
Important Points to Consider:
- Any scholarship can be considered taxable income if it covers anything other than tuition and applicable fees (graduation fee, application fee, books, lab fee, etc.).
- The difference between the amount of scholarship received and the amount of the tuition and applicable fees is considered the ‘taxable income’.
- International students receive credit for every day they are in the U.S., such as exemption.
Does this mean that international students always owe money?
Not always -
- If the amount of exemption covers the amount of ‘taxable income,’ they do not owe taxes. If the amount of exemption does not cover the amount of ‘taxable income’, they owe taxes on the difference at a rate of 14%.
- 95% of the students who complete the paperwork either do not have to pay taxes or only have to pay a small portion
- If tax forms are not completed, students will owe more money than if the forms were completed. It benefits the international student to complete the forms on time.
- International students can also file for a refund if they have a social security number.
How can I be sure that proper tax forms are complete, my income on scholarships is legally reported, and I pay the least amount of money?
Contact Budget Manager, Ms. Kristy Horner in the Business Office
Wildy Hall Room 106 klhorner@mckendree.edu
Paperwork must be completed by March 15 of each year, which means that Ms. Horner should be contacted before leaving campus in December.
How does the Business Office determine taxable income?
- Calculate the number of days the student was in the U.S. for the applicable tax year.
- Take this number and divide by 365 (days in the year) and multiply this by the exemption rate (For 2006 - $3,300).
- Take the number of days the student was in the U.S. (as long as it is less than 365) and multiply it by $18 per day.
- Add both of these numbers (step 2 and step 3) to determine the student’s exemption.
Any tax that is owed is paid by McKendree on behalf of the international student and then, is placed on the student’s account as an amount that is due for “1042-S Fed Tax W/H – 2006”. The student is responsible for this amount. After this process is complete, the student can use the 1042-S tax form to file an income tax return (if they have a SSN) for a refund.
EXAMPLE: Year 2006
Registration for 2006/SP $8,900
BRN 318 $1,850
120 Meal Plan $1,430
McKendree Grant $4,000
Provost Scholarship $1,500
McK Women’s Basketball Scholar $5,500
Total Scholarships Received $11,000
Total Tuition/Fees ($ 8,900)
Taxable Income $ 2,100
Student was in the U.S. for 203 days
Days in U.S. (203) divided by 365 X $3,300 = $1,848
Days in U.S. (203) X $18.00 =
(Only if in U.S. less than 1 year) $3,654
Total Personal Exemption for 2006 $5,502
Taxable Income $2,100
Total Personal Exemption ($5,502)**
Total Amt of Tax owed for 2006 $ 0
(Because the balance is negative, the student owes nothing)**
**If the exemption amount is less than the taxable income ($1,502), then the taxable income is $598 taxed at a rate of 14% and the student would owe McKendree $83.72.
**If this student did not complete the paperwork - $2,100 taxed at a rate of 14% and the student would owe McKendree $294.