Generally, fellowships and scholarships are not taxable when used for qualified educational expenses. Non-qualified fellowships and scholarships (not used for qualified educational expenses) are taxable unless exempted by the federal and state revenue taxation code.
U.S. Citizens, Residents, Asylees, and Refugees self-report when it comes to taxable fellowships and scholarships. It is therefore advisable to keep track of fellowship/scholarship payments received or constructively received during the tax year. Payments received during the tax year may or may not be reflected on Form 1098-T. For more information on Form 1098-T, please contact Student Business Services.
Nonresident aliens who received fellowships and scholarships during a tax year will receive Form 1042-S at end of the tax year. For questions regarding your UC Merced issued Form 1042-S, please submit a Tax Inquiry ticket in ServiceNow.
How Non-U.S. Citizens Are Taxed
U.S. taxation of non-U.S. citizens depends on their tax residency status. See IRS Publication 519, U.S. Tax Guide for Aliens.
- Resident aliens are taxed like U.S. citizens on their worldwide income, at graduated income tax rates.
- Nonresident aliens are taxed on their U.S. source income and/or effectively connected income (income connected to a U.S. trade or business conducted by a foreign person).
Dual-status aliens (aliens who change their status from nonresident alien to resident alien and vice versa within the same tax year) are taxed differently for the resident and nonresident portions of the year.
Year-End Tax Statements
- Form W-2, to report wages to both resident alien and nonresident alien employees.
- Form 1099-MISC to report payments of $600 or more during the tax year, to residents receiving rent, awards, patents, and royalties.
- Form 1099-NEC to report payments of $600 or more during the tax year, to resident independent contractors.
- Form 1042-S, to report U.S. source income subject to withholding, to Nonresident aliens (e.g., taxable scholarship and fellowship payments, independent contractor payments and wages to employees who claim tax treaty benefits).
- Form 592-B to report state withholding on payments to independent contractors for services provided in California.
Tax Filing Requirements & Forms
Information on federal and state filing requirements, tax forms and instructions can be found at the IRS website and at the Franchise Tax Board (FTB) website.
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U.S. Citizens, U.S. Permanent Residents, Asylees, Refugees, and DACA tax forms – federal Form 1040 and state of California Form 540 or 540 2EZ.
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Resident alien tax forms – federal Form 1040 and state of California Form 540 or 540 2EZ.
- Nonresident alien tax forms - federal Form 1040 NR and state of California Form 540NR.
- Dual-status aliens have to file a special federal tax return.
Determining Tax Residency Status
- GLACIER, UCLA’s nonresident alien tax compliance system, is used to determine tax residency status for foreign students, scholarship and fellowship recipients, employees and other foreign payees including independent contractors.
Tax Preparation
GLACIER Tax Prep (GTP), a web-based tax preparation system designed for nonresident aliens, can be used by nonresident aliens to prepare Form 1040NR. Nonresident Alien filers with a GLACIER record can use GTP for free. More information is available at the Arctic International website.
