Understanding Taxes on Scholarships and Financial Aid

At St. Lawrence University, we’re proud to support our students, both domestic and international, with generous scholarships and financial aid. It’s important to understand that some portions of scholarship awards may be considered taxable income under U.S. law.

What Is Taxable?

Scholarship funds used for qualified education expenses, including tuition, mandatory fees, books, supplies, and equipment required for coursework, are not taxable.

Funds used for non-qualified expenses, such as room and board, travel, or optional equipment, are taxable. The taxable portion must be reported as income to the Internal Revenue Service (IRS).

For Domestic Students (U.S. Citizens and Resident Aliens)

• Taxable Amount: Any portion of a scholarship used for non-qualified expenses (such as room, board, or travel) must be included in your gross income and reported on your federal income tax return (Form 1040).
• Degree Requirement: Scholarships are tax-free only if you are a candidate for a degree at an eligible educational institution.
• Payment for Services: Any portion of a scholarship representing payment for teaching, research, or other work is considered taxable wages, even if used for tuition or other qualified expenses.
• Form 1098-T: Each year, St. Lawrence University issues Form 1098-T (Tuition Statement) to eligible domestic students. This form reports payments for qualified tuition and related expenses, as well as scholarships and grants received during the tax year. It’s used to determine eligibility for education tax credits such as the American Opportunity Credit or Lifetime Learning Credit.
  • The 1098-T does not show taxable scholarship income. If your scholarship exceeds qualified education expenses, you must keep your own records and report the excess amount as income when filing your federal tax return.

For International Students (Nonresident Aliens)

The U.S. government treats scholarship funds that exceed qualified education expenses as taxable U.S. income when paid by a U.S. institution.

• Tax Withholding: St. Lawrence University is required to withhold federal income tax on the taxable portion of your scholarship:
  • 14% for students on F, J, M, or Q visas
  • 30% for other nonresident aliens
• Reporting: The University reports the taxable income and any taxes withheld to both you and the IRS on Form 1042-S.
• Tax Treaties: You may qualify for a reduced rate or exemption under an income tax treaty between your home country and the U.S. To claim treaty benefits, you must have a U.S. Taxpayer Identification Number (TIN) or Social Security Number (SSN) and submit the appropriate forms (such as Form W-8BEN or 8233).
• Filing Requirement: Most international students must file a U.S. tax return (Form 1040-NR) each spring to report income and possibly receive a refund for over-withheld taxes.

Support and Resources

We understand this process can be confusing, and we’re committed to helping you navigate it. St. Lawrence provides:

• Assistance from Student Financial Services to help you understand any impact on your student account and set up payment plans if needed.
• Free Sprintax codes each spring to help students prepare and file federal tax returns.

Additional Guidance

For complete details about what counts as taxable scholarship income and how to report it, please consult IRS Publication 970: Tax Benefits for Education and seek professional tax advice.