International Taxation – Travel Payments to Students
The following information discusses taxation applicability for student travel (domestic and foreign national) when considering U.S. tax and immigration laws.
Tax law governs the taxability of reimbursements, but immigration law addresses whether a non-immigrant (non-citizen; non-“green”-card holder) can accept reimbursements. Immigration law governs the activities non-immigrants are permitted to engage in while in the U.S., whether they can be paid for allowed activities, and/or whether they can be reimbursed for allowed activities. The non-immigrant status of the individual (F, J, B, etc.) will, in part, answer these questions.
If the activity is permitted, recipients may be able to receive both compensation and reimbursements; sometimes, only reimbursements are allowed; sometimes, not even reimbursements are allowed.
If reimbursements are allowed pursuant to immigration law, they can be paid. Whether these reimbursements are tax reportable will depend on whether they meet the university’s accountable plan rules. If the reimbursements do not meet the accountable plan rules, they are tax reportable to the recipient and, when paid to an NRA, are subject to 30% withholding absent a documented exception, such as a valid tax treaty claim or a reduction in the tax rate from 30% to 14% for immigrant visas F, J, M and Q. Most travel grants/scholarships paid to University students would be considered a nonqualified scholarship and the university would not have a reporting requirement. However, the income may be taxable to the recipient. Therefore, in addition to non-immigrant status information, and documentation for accountable plan purposes, you need to know whether your recipient is a U.S. or non-U.S. tax resident.
There are also additional issues to attend to regarding the Specially Designated Nationals list and OFAC requirements — so there are many reasons beyond the tax reporting requirements to collect and analyze this information. Unfortunately, in addition to the interplay and sometimes conflict between all of these complex rules, there is no single authoritative source that has collected, analyzed and explained all of these requirements to eliminate these conflicts.
For all student payment requests, following the Required Documentation to process Travel Reimbursements, Stipends, Awards, Scholarships & Fellowships, and Miscellaneous payments guide ensures payments are calculated accurately and proper withholding amounts are based on valid immigration status.
Student Travel Grants & Reimbursements
It is necessary to distinguish between student travel that is considered a reimbursement and student travel that is considered a scholarship.
Reimbursements are not reportable to the Internal Revenue Service (IRS) as income to the student if the student can document that the reimbursement:
- Directly supports a faculty member’s project or research program, or
- Is related to presenting at a conference on behalf of NC State University, or
- Is official university business
Any reimbursement to an undergraduate or graduate student which does not meet one of the above criteria will be taxable scholarship income to the recipient but is not reported on IRS Form W-2 or 1099-MISC.*
* Nonresident aliens for U.S. tax purposes are required to have a 14% federal withholding (assuming F-1 or J-1 visa) and the payment will be reported as scholarship income on Form 1042-S. It is the recipient’s responsibility to maintain records for these scholarship payments.
Student reimbursements are of a complex nature and the below explanations are not inclusive and determinations may need to be made on an individual basis.
The student travel payment is generally considered reimbursement (nontaxable, non-reportable) if:
- The primary purpose and original intent is for the university to obtain useful results from the project/research
- Results or research will be used by the university
- Research is performed to fulfill the university’s obligations to an outside funding entity
- Student is presenting or actively participating in a conference or competition on behalf of the university
Examples of nontaxable, non-reportable reimbursement
- Student travels to Texas to represent the university in a scholastic competition.
- Student travels to Michigan to present at a conference, where the student’s name is published (poster, website, brochure) as a presenter/contributor at the conference.
- Student travels to China to perform research, which happens to be the topic of her dissertation. The university would otherwise perform research on this topic, regardless of the student’s research – the university is the primary beneficiary.
The student travel grant payment is generally considered to be a scholarship (taxable, reportable) if:
- Reimbursement is made for activities in which the university is relatively disinterested or the research is student led
- The project/research’s primary purpose and original intent is to further the student’s education or training
- The university obtains little or no benefit
- Activities are performed to contribute to the development of the skills needed in the student’s studies
Examples of Taxable Travel Grant or Scholarship
- Student travels to the United Kingdom for dissertation research which is not research the university would otherwise conduct – the student dissertation is the primary purpose of the travel – the student is the primary beneficiary.
- Student travels to a conference in Mexico as an attendee and does not present/contribute in an official capacity.
- Student travels to China for Mandarin language training which will assist in language proficiency needed for a degree. This is supplemental work that the student may need to succeed, but it is not a required part of the degree.
TAXES and REPORTING
Domestic Students (includes U.S. Citizens, permanent residents and residents for tax purposes)
Business related reimbursements are not considered reportable or taxable income. There is no tax withholding requirement for scholarship/fellowship payments, but this income is reportable and taxable income to the recipient. This income is not reported on a tax document (e.g. IRS Form W-2 or 1099-MISC), but is considered to be self-reported income per IRS publication 970. Students may be required to pay estimated quarterly taxes to federal and state tax authorities on this income. Please seek advice from your personal tax advisor regarding this if needed.
International Students (nonresident aliens for U.S. tax purposes)
Business related reimbursements are not considered reportable or taxable income. Assuming F-1, J-1, M and Q visa, there is a 14% federal tax withholding on scholarship/fellowship payments, and this income is reportable and taxable income to the recipient. This income is reported on IRS Form 1042-S. Students may be required to pay estimated quarterly taxes to federal and state tax authorities on this income. Please seek advice from your personal tax advisor regarding this if needed.