If you are lucky enough to receive a Fulbright grant to help finance your academic research and studies, the IRS, for tax purposes, will treat it just like other private and public scholarships or grants you receive. The Fulbright grant can be taxed in different ways, depending on the type of expenses for which you use the funds.
If your Fulbright grant is used for educational expenses such as tuition and fees, the funds will be exempt from taxation. However, if they are used for any other purpose, such as paying for housing, you will be required to pay tax on them.
Tax-Free Fulbright Grant
The IRS will not require you to report the Fulbright grant as taxable income on a return provided you use the funds only for qualified educational expenses. A qualified educational expense includes amounts you pay for tuition, fees, books, supplies and equipment only. However, in order to exclude your grant income from taxation, you must enroll in a degree program at a college or university. If you receive the grant for any other purpose, such as to conduct research or lecture abroad, your Fulbright grant is considered taxable income.
Taxable Fulbright Grant
In the event you are unable to satisfy all of the requirements for excluding your Fulbright grant, then the income is fully taxable. However, if you use a portion of the grant money for qualified expenses and other portions for nonqualified expenses, such as room and board and transportation expenses, then only some of your Fulbright grant is taxable. For example, if you receive a $20,000 Fulbright grant and use $15,000 of it to pay tuition and fees, and the remaining $5,000 for your dorm room on campus, then only $5,000 of your grant is taxable.
Reporting Taxable Amounts
When it’s necessary to report some of your grant income on a tax return, the IRS requires that you report it on the same line as your other gross wages. Regardless of the form you use to file, you must make a “SCH” notation on the line. Naturally, before you start reporting your Fulbright income, you should double check and make sure you have to file a tax return at all.
For example, a single filer doesn’t need to file a tax return unless his income that is subject to tax exceeds $9,500. This is the amount of the standard deduction plus one exemption, which is the maximum amount of income you can earn that’s automatically tax-free. Therefore, if that $5,000 is your only income for the year, then you don’t report it on a return since there is no requirement to file one.
Self-Employment Tax Implications
In the event the taxable amount of your Fulbright grant requires you to report it on a tax return, then you may be responsible for paying self-employment tax in addition to income tax. The self-employment tax relates to the funding for the Social Security and Medicare systems. When you have Fulbright grants that are taxable, the IRS treats that as self-employment income, which is what obligates you to pay self-employment tax. Therefore, if your taxable grant is $400 or more, you need to calculate this additional tax liability on Schedule SE and attach it to your return.
- IRS: Publication 970 -- Tax Benefits for Education
- IRS: Publication 501 -- Exemptions, Standard Deduction, and Filing Information
- Benedictine University: 2017 – 2018 Student Confirmation of Taxable Grant/Scholarship Aid
- IRS: Topic Number 421 - Scholarships, Fellowship Grants, and Other Grants
- IRS: Topic Number 554 - Self-Employment Tax