In recent years, record numbers of foreign students have enrolled in graduate and under- graduate programs at U.S. colleges and universities. During the 2012-2013 academic year, their numbers topped 800,000—the seventh consecutive annual increase.1 Roughly two-thirds of such visiting students pay their own way or are otherwise subsidized from abroad, but their growing numbers mean that U.S. institutions will be awarding scholarships, grants, prizes and other forms of non-governmental assistance to foreign nationals with increasing frequency, and with all of the attendant tax compliance obligations that such payments entail.

It should be noted at the outset that seemingly similar types of educational assistance may be subject to very different tax treatment regardless of the tax status of the recipient. For example, a scholarship may be excludable from income, taxable as wages, treated as non-wage income—or some combination of the above— depending on its terms. Moreover, the same types of assistance can be subject to very different reporting and withholding requirements, depending on whether the recipient is a U.S. citizen, a resident alien, or a nonresident alien, and on whether the recipient is eligible for any kind of relief under an applicable tax treaty.

Originally Published in Taxation of Exempts, Volume 26, Issue 1 - July/August 2014.