All U.S. source non-qualified scholarship or fellowship payments made to nonresident aliens are subject to tax withholding and reporting to IRS.

Under section 117 of the Internal Revenue Code a "qualified scholarship" is one that is used to pay "tuition and fees, book, supplies, and equipment required for the courses at the educational institution". Qualified scholarship payments made to nonresident aliens are neither subject to withholding nor IRS reportable.

Any portion of the scholarship, fellowship, or grant that does not directly pay for those items mentioned above is considered non-qualified, and subject to withholding and reporting to Internal Revenue Service. If you are a non-degree candidate or post-doctoral research scholar, the entire grant is subject to withholding and reporting to IRS if paid to a nonresident alien.

Under section 1441, taxes must generally be withheld at the 30 percent tax rate. However, under Internal Revenue Code 871(c), if you are a nonresident alien present in the U.S. on F-1 or J-1 visa statuses, you are subject to only 14 percent withholdings on the taxable portion of the scholarship or fellowship payments. See nonresident Alien Scholarship and Fellowship Grants for more information.

Many countries have entered into reciprocal agreements with the U.S. whereas the foreign resident can claim an exclusion from tax withholding under a tax treaty benefit. See Tax Treaty Countries for a list of treaty countries and types of treaty exemptions available with each country. Also see Claiming Tax Treaty Benefits for more information.

The type of form used to claim scholarship/fellowship treaty benefits depends upon whether you are a nonresident alien or U.S. resident for tax purposes.

Use form W-8BEN if you are a nonresident alien for tax purposes. The submitted form is valid until December 31 of the third calendar year following the year in which the form was submitted. It is valid indefinitely as long as payments are made at least once a year, the treaty benefits have not expired, and you continue to be considered a nonresident alien for tax purposes.

• IRS Form W-8BEN
• IRS Form W-8BEN Instructions

Use forms W-9 and Attachment to form W-9 if you are a resident for tax purposes and still qualify for treaty benefits. Once filed, these forms remain valid indefinitely until your individual circumstances change so as to cause the information reported to no longer be valid (e.g. resident becomes a "green card" holder or citizen, or treaty time limits run out).

• IRS Form W-9 Request for Taxpayer ID and Certification
• Attachment to Form W-9 for Tax Treaty Benefits

All forms should be sent to Payroll Services at 1300 S. 2nd Street, 545 WBOB, Minneapolis, MN 55454.

All taxable scholarship or fellowship payments made to nonresident aliens are required to be reported to you and to Internal Revenue Service on Form 1042-S.