ALIEN MANUAL - FELLOWSHIP/SCHOLARSHIP, SECTION H
Nonresident students that receive U.S. fellowships or scholarships may be subject to federal and tax withholding. Under section 117 of the IRS code, a fellowship is "an amount paid or allowed to , or for the benefit of, an individual to aid him in the pursuit of study or research." A scholarship is "an amount paid or allowed to, or for the benefit of , a student, whether an undergraduate or graduate, to aid such individual in pursuing his studies."
As a reminder, just because a payment is made to a student for the purpose of paying the tuition or other educational expenses does not mean that the payment is a fellowship or scholarship under IRS regulations. If the payment is for services by the student and is required as a condition to receive the qualified scholarship, this is compensation. Compensation is governed by another set of rules and must be paid through the payroll system.
H2.0 PROCEDURE - PAYMENT ARE MADE TO F1, J1 VISA
Currently at UCLA, the procedure to pay a qualified fellowship or scholarship is as follows:
Departmental funds: Departments complete a form 10 designating a recipient of a fellowship/scholarship and forward the form to the Graduate Division Office. The Graduate Division reviews the form for complete information and accuracy. The award is coded into their system. The Graduate Division also checks to insure that all appropriate attachments (i.e. Statement of Citizenship form and 1001 form) have been submitted. If all information is correct and all attachments have been submitted, the award is processed and taxed according to the information on the system (from admission package). If information is not correct and/or attachments are missing, the Graduate Division will place a hold on the transaction. The student will not receive the award until corrections are made and/or forms are submitted.
Graduate Division Funds: The Graduate Division receives funds and allocates to departments. Departments complete a Nomination Form to designate how the funds will be spent and who should receive the funds. The Nomination Form is forwarded to the Graduate Division Office. The Graduate Division reviews the form for complete information and accuracy. The award is coded into their system. The Graduate Division Office also checks to insure that all appropriate attachments (i.e. Statement of Citizenship form and 1001 form) have been submitted. If all information is correct and all attachments have been submitted, the award is processed and taxed according to the information on the system. If information is not correct and/or attachments are missing, the Graduate Division will place a hold on the transaction. The student will not receive the award until corrections are made and/or forms are submitted.
H3.0 WITHHOLDING ON FELLOWSHIP/SCHOLARSHIP FUNDS
Federal Withholding: Generally fellowship/scholarship payments made to nonresident aliens are taxed at the normal 30% withholding rate. Under IRS section 1441 (b) a reduced rate of 14% is granted to F, J, M, and Q visa holders. Also, a U.S. fellowship/scholarship payment made to nonresident aliens may be exempt from federal taxes under a tax treaty agreement. When a student chooses the tax treaty eligibility department needs to be aware of the following.
Tax Treaty Requirements
There must be an existing tax treaty between the U.S. and the student’s country of residency.
The visitor must be a nonresident. This must be reevaluated each year and is currently being done by the Graduate Division.
The primary purpose of the student’s visit to the U.S. must meet the requirements. Student income is covered by income code - 15.
The student must be paid the type of income covered in article of the tax treaty. Some tax treaties have student articles that cover different types of payments: compensation for services, scholarship/fellowship, and allowances from abroad.
The student must meet the time and dollar constraints of the tax treaty article.
State Withholdings: For nonresident of California, state taxes are withheld on fellowship/scholarship payments at the rate of 7% of nonexcludable payments in excess of $1,000.00 per month or $9,000.00 per calendar year. Federal Tax Treaties are not applicable for state tax withholdings.
As with any type of payment, certain forms are required to assist the Graduate Student Support office in determining residency for tax purposes or obtaining data for the Student Information System. The chart on page H4-2 lists the required forms by award type and samples of each form follow.
The Graduate Student Support Payment Update form and the Foreign Address Update form are completed to update address information. The GSSPU form also can be used for check distribution.
H4.1 Forms Required for Graduate Student Support Awards:
AWARD TYPE |
Contract |
FAFSA |
Financial |
Statement of |
Tax-Treaty |
Form
590 |
GRADUATE DIVISION FUNDS |
||||||
Fees/Nonresident Tuition |
Yes |
Yes for U.S. Resident |
Yes for Nonresident |
Yes for Non Citizen |
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Fee Remissions (AAP) |
Yes for Non Citizen |
|||||
Stipend |
Yes |
Yes for U.S. Resident |
Yes for Nonresident |
Yes for Non Citizen |
Yes* |
Yes** |
Conference Travel |
Yes |
Yes for U.S. Resident |
Yes for Nonresident |
Yes for Non Citizen |
Yes* |
Yes** |
Relocation Expenses |
Yes |
Yes for U.S. Resident |
Yes for Nonresident |
Yes for Non Citizen |
Yes* |
Yes** |
DEPARTMENTAL FUNDS |
||||||
Fees/Nonresident Tuition |
Yes for Non Citizen |
|||||
Stipend |
Yes for Non Citizen |
Yes* |
Yes** |
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Tax-treaty countries are listed on the chart contained within the Tax-Treaty Packet. For the purposes of student support funds, only those countries with a scholarships/fellowships line-item in the treaty count as tax-treaty countries. some countries have treaties which are only applicable in EDB for wage earnings. To be certain of tax-treaty applicability consult the chart in the Tax-Treaty Packet or obtain online access to SIS screen 445 (SBAR Tax Treaty Display). *Only if eligibility for tax treaty has been established. **See specific information below about California Form 590. Contract - The "Offer of Graduate Student Support" is mailed by your department’s workgroup to the student’s address. Two copies of the offer must be signed by the student and returned to the Graduate Student Support Office. Contracts are generated for Special Fellowships, allocation-based fee, nonresident-tuition, stipend, conference-travel/research, relocation expense, and ICFOG awards. Contracts are not generated or required for AAP fee remissions. FAFSA - Not applicable to nonresident alien individuals from tax-treaty countries. Financial Statement - As U.S. -nonresident students cannot complete the FAFSA, Graduate Student Support uses the "Financial Statement" to collect the financial data required from international students receiving Graduate Division funds. Also, in special cases, this form is used as an interim method of collecting U.S. citizen/resident financial data in the event that an individual’s FAFSA processing significantly delays award payment. Any U.S. citizen/resident permitted to use this interim method of data reporting MUST complete the FAFSA in addition. Statement of Citizenship - All individuals who are not U.S. citizens must complete the "Statement of Citizenship" form. This form, when accompanied by a copy of the student’s I-94 Departure Record (found inside the passport) or green card, establishes the individual’s federal tax-withholding status. Individuals may show proof of green card status in person at 1228 Murphy Hall, if they wish, rather than attaching the green card photocopy. All required parts of the form must be completed to ensure the appropriate level of tax withholding. Tax-Treaty Packet - Must be completed by all individuals from tax-treaty countries receiving stipend payments. This packet consists of two parts: (1) the cover sheet, used to determine date of treaty expiration, if any, and (2) the IRS Form 1001, used to validate an individuals claim to tax-treaty benefits. The good news about this packet: once filled out correctly, it is valid for 3 calendar years. If we don’t receive this form, we are not allowed to exempt stipends from U.S. income tax under a treaty. Please note: A treaty with Israel for fellowships was recently ratified. It provides for 5 years of treaty exemption with no dollar maximum. Form 590 - The "California Tax Withholding Statement" is used to determine the appropriate withholding of state income tax from stipend checks. If an individual is a resident for tuition purposes in SRS, he/she does not need to complete the Form 590: SBAR’s tax calculation assumes that tuition-resident students are tax residents, as the standards for tuition residency are more stringent than those of tax residency. However, if an individual is (1) a nonresident for tuition purposes, (2) missing online tuition-residency information, or (3) a postdoctoral fellow or visiting scholar, he/she must complete the Form 590. To be safe, you may wish to distribute the form to all individuals receiving stipend awards. The submission of the form is not required for any individual who is receiving only fee or nonresident-tuition awards. Updated 3-15-96 |
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The Foreign Address Update form is used by Graduate Division to assure correct address is on file.
FOREIGN ADDRESS UPDATE FORM UCLA Graduate Student Support Office If you are a non-U.S. citizen, we must report your foreign address to the Internal Revenue Service. Please fill in each section completely and return this form by mail or in person. NAME: _______________________________________________________________________ UNIVERSITY ID NUMBER: ___ ___ ___ - ___ ___ ___ - ___ ___ ___ ACADEMIC DEPARTMENT: _______________________________________________________ FOREIGN ADDRESS INFORMATION: Do not include your name. If your complete street line fits into one line, please use Street Address Line 1 only. Street Address Line 1 (up to 32 characters): Street Address Line 2 (up to 32 characters): City (up to 25 characters):
Country (up to 25 characters): Update 12-17-95 |
Graduate Student Support Payment Update Form
Statement of Citizenship - All nonresidents receiving a fellowship/scholarship/grant must complete a Certificate of Foreign Status for Federal Tax Withholding (UC W-8BEN). This UC form records address information and is used to determine U.S. residency for tax purposes. This form must be completed annually. An example of this form can be found in Section E2.2.
Tax Treaty Packet - Must be completed by all individuals from tax-treaty countries receiving stipend payments. This packet consists of three parts: (1) the cover sheet, used to determine date of treaty expiration, if any, (2) the IRS Form 1001, used to validate an individuals claim to tax-treaty benefits and (3) Tax Treaty Statement Form. The good news about this packet: once filled out correctly, it is valid for 3 calendar years. If we don’t receive this form, we are not allowed to exempt stipends from U.S. income tax under a treaty. Please note: A treaty with Israel for fellowships was recently ratified. It provides for 5 years of treaty exemption with no dollar maximum.
Cover Sheet
This is a Graduate Division form to insure a student is eligible for a tax treaty. There are instructions which assist a student through the complicated steps of determining eligibility. Also shown is a list of eligible tax treaty countries. An example of this form is shown below.
1001 Form
This IRS form is completed by individuals who wish to claim a tax treaty exemption under the student article, (also known as income code 15), for fellowship/scholarship funds. This form is completed every 3 years and is filed at Graduate Division. An example of this form is shown below.
Tax Treaty Form
This form is required by all nonresident aliens who are claiming exemption from Federal tax withholding on fellowship/scholarship compensation (income code 15) when the exemption is based on a tax treaty to which the United States is a party. Be sure to use the appropriate country’s form and remember that the provisions for each country do vary. An example of this form is shown below.
Page 2 Form 1001 (Rev. 9-95)
| Purpose of Form Beneficial owners of certain types of income (or owners’ trustees or agents) use this form to report to a withholding agent both the ownership of the income and the reduced rate of tax or exemption from tax on the income under tax conventions or treaties. The form can also be used to claim a release of tax withheld at source. Instructions for Owners, Trustees, or Agents Who Must File.—You must file Form 1001 if you are the beneficial owner of income subject to withholding under section 1441, 1442, or 1451 (or you are the trustee or agent of the beneficial owner) and the owner is a nonresident alien individual or fiduciary, a foreign partnership, or a foreign corporation or other foreign entity. The term "beneficial owner" means the person ultimately entitled to control the income. A nominee or any person acting in a similar capacity is not the beneficial owner. Who Does Not Have To File.— You do
not have to file this form if you are: However, a foreign corporation that receives dividends from another foreign corporation that are treated as income from sources within the United States under section 861(a)(2)(B) must file Form 1001 unless the dividends are exempt from tax under section 884(e)(3) (relating to earnings and profits subject to the branch profits tax). 2. A beneficial owner, trustee, or agent who receives only income other than coupon bond interest and who does not claim the benefit of an income tax treaty. 3. A nonresident alien individual or fiduciary, foreign partnership, or foreign corporation engaged in a trade or business in the United States during the tax year if the income is (a) effectively connected with the conduct of a trade or business in the United States by the individual, fiduciary, partnership, or corporation, and (b) exempt from withholding under section 1441 or 1442 because of Regulations section 1.1441-4(a). (In this case, file Form 4224, Exemption From Withholding of Tax on Income Effectively Connected With the Conduct of a Trade or Business in the United States.) The release is only available prior to the filing of Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, for the calendar year by the withholding agent (Regulations section 1.1461-4). 4. A nonresident alien individual who claims exemption from withholding on compensation for independent personal services based on a U.S. tax treaty or the personal exemption amount. (File Form 8233, Exemption From Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual.) 5. A nonresident alien individual or fiduciary, a foreign corporation, or a foreign partnership made up entirely of nonresident alien individuals and foreign corporations, if the interest is exempt from withholding under section 1441 or 1442 because of section 1441(c)(9) or (10). 6. A foreign partnership or foreign corporation engaged in a trade or business in the United States during the tax year if the income is exempt from withholding under section 1441 or 1442 because of Regulations section 1.1441-4(f). Where and When To File.—File this form with the withholding agent. When you file depends on the type of income to which Form 1001 applies, as specified in the boxes in item 1: Box 1b.—For interest on coupon bonds, including tax-free covenant bonds, file the form each time you present a coupon for payment. (Use a separate Form 1001 for each issue of bonds.) All other item 1 boxes.—For all other types of income, file the form as soon as you can for any successive 3-calendar-year period during which you expect to receive the income. Use a separate Form 1001 for each type of income, except for income received from a trust, estate, or investment account (box 1a). For that type of income, use a separate Form 1001 for each different trust, estate, or investment account. |
If after filing a form you become
ineligible for the benefits of the tax treaty for the income, notify the withholding agent
in writing. If the beneficial ownership of the income changes hands, the new beneficial
owner of record may receive the reduced or exempt rate of tax under the treaty only if
entitled to it. In addition, the new beneficial owner must properly file Form 1001 with
the withholding agent. Specific Instructions Address.—Enter your address in the space provided. For an individual, your address is your permanent place of residence. For partnerships or corporations, the address is the principal office or place of business. For estates and trusts, the address is the permanent residence or principal office of the fiduciary. Note: To qualify for treaty benefits, a taxpayer must be a resident of a treaty country. (In some cases, a corporate taxpayer must also be a "qualified resident." See the instructions for line 5.) The withholding agent may presume that the beneficial owner of the income is not a resident (or qualified resident) of a treaty country, and is not entitled to treaty benefits, if the owner does not have a resident address in that country. The beneficial owner of the income may demonstrate that he or she was a resident (or qualified resident) of the treaty country and was entitled to treaty benefits. Line 2g—Rate of tax.—Get Pub. 901, U.S. Tax Treaties, for the applicable rate, if any, to enter on line 2g. If the interest is exempt from tax, write "None." Line 3—If you checked any box on line 1 other than box b, enter the years for which the reduced rate of tax or exemption from tax applies. Line 4—Withheld tax requested to be released.—If you use this form to claim a release of tax withheld at source, enter the amount claimed on line 4. In the space to the left of the dollar entry space on line 4, identify the income tax treaty and the rate of tax for items 1a and 1c through 1i. The release is only available prior to the filing of Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, for the calendar year by the withholding agent (Regulations section 1.1461-4). Line 5—Qualified resident status.— This line applies only to a corporation that claims treaty benefits for dividends paid to it by another foreign corporation or interest paid to it by a U.S. trade or business of another foreign corporation. To obtain treaty benefits for these payments, the recipient corporation must generally be a "qualified resident" of a treaty country or meet the requirements of a limitation on benefits article that entered into force after 1986. (See section 884 and its regulations for the definition of interest paid by a U.S. trade or business, and other applicable rules.) In general, a foreign corporation is a qualified resident of a country if any of the following applies: (a) it meets a 50% ownership and base erosion test, (b) it is primarily and regularly traded on an established securities market in its country of residence or the United States, (c) it carries on an active trade or business in its country of residence, or (d) it obtains a ruling from the IRS that it is a qualified resident. See Regulations section 1.884-5 for the requirements that must be met to satisfy each of these tests. Complete this line by indicating which of these tests has been met (if you claim qualified resident status) or that you meet the requirements of a limitation on benefits article that entered into force after 1986. Instructions for Withholding Agent As a withholding agent, you are not required to send Form 1001 to the IRS. Instead, use Form 1001 to prepare magnetic tape or paper document Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. Keep Form 1001 for at least 4 years after the end of the last calendar year in which the income to which the form pertains is paid. Prepare a Form 1042-S for each separate payment during the calendar year of any item of income (including coupon bond interest). If you receive more than one Form 1001 for an owner during the calendar year, prepare only one Form 1042-S to show the total amount of any item paid to the owner for that year. For withholding rates and other information, get Pub. 515, Withholding of Tax on Nonresident Aliens and Foreign Corporations. |
Tax Treaty Example
All individuals that wish to claim California residency must complete a 590 form. This form is used by the Graduate Student Support Office to determine California residents for tax purposes. All other individuals will be taxed as if they were nonresidents of California. An example of this form is shown below.
California State Tax-Withholding Statement Year Please return to UCLA Graduate Student Support Office, 1228 Murphy Hall, Los Angeles, CA 90095-1444 .Do not complete this form without first reading the instructions on the reverse side.
ACADEMIC DEPARTMENT : TAX SCIENCES
IMPORTANT. PLEASE READ CAREFULLY . Check the box which corresponds to your status of California residency for tax purposes. You must check one and only one box. Then, sign and date the certification beneath the appropriate box. Failure to sign, date, or provide requested information above will render this certificate void.TO: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
Signature ____________________________________ Date ________________________
Signature Jeanne D'ours Date 4-15-96 For Privacy Act notice, see form FTB 1131. Revision 4-15-96 |
Instructions for Form 590
California State Tax-Withholding Statement
A. Purpose of Form
Form 590 establishes California residency status for tax purposes. All individuals ultimately have a tax liability to the California State Franchise Tax Board. Nonresidents have taxes withheld up-front, at the time of award disbursement. Residents, on the other hand, do not have taxes withheld by the University of California and instead file tax payments directly with the State.
B. Law
R&TC Section 18662 and the related regulations require withholding of income or franchise tax on payments of California source income made to nonresidents of this state. To get a withholding publication, call the Withhold at Source Unit at (916) 845-4900.
C. Who is a Resident
The underlying theory of residency is that you are a resident of the place where you have the closest connections. The term "resident" includes every individual who is in California for other than a temporary or transitory purpose and any individual domiciled in California who is absent for only a temporary or transitory purpose. NOTE: Residency for tax purposes is not related to residency for U.C. tuition purposes. You may be a California resident for tax purposes on the day of your arrival in California, even if you do not become a U.C. tuition-resident for a year or more after your date of arrival.
The following list includes some of the factors you can use to determine your residency status for tax purposes. Since your residency is usually the place where you have the closest ties, you should compare your ties to California with your ties elsewhere. In using these factors, remember it is the strength of your ties, not just the number of ties, that determines your residency or nonresidency: (1) amount of time you spend in California versus amounts of time you spend outside California; (2) location of your spouse and children; (3) location of your principal residence; (4) where you were issued your driver’s license; (5) where your vehicles are registered; (6) where you maintain your professional licenses; (7) where you are registered to vote; (8) location of the banks where you maintain accounts; (9) location of your doctors, dentists, accountants, and attorneys; (10) location of the church or temple, professional associations, or social clubs of which you are a member; (11) location of your real property and investments; (12) permanence of your work assignments; (13) location of your social ties. Caution: This is only a partial list of the factors to consider. You must consider all of the facts of your particular situation to determine your residency status.
In general, an individual who comes to California for a purpose which will extend over a long or indefinite period will be considered a resident. However, an individual who comes to perform a particular contract of short duration will be considered a nonresident.
For assistance in determining resident status, get FTB Publication 1031, "Guidelines for Determining Resident Status," or call the appropriate toll-free telephone number listed below:
From within the United States: 1-800-852-5711
From outside the United States: 1-916-845-6500
For hearing impaired with TDD: 1-800-822-6268
INSTRUCTIONS FOR COMPLETING THE FORM:
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