Is my income from Uk research grant taxable in USA?

Hello everyone,

Hoping someone on here will have experience with a question I just can't find an answer to.

I'm a USA citizen doing my PhD in the UK. Is the research grant money (living stipend) my UK university gives me taxable in the US? (it is tax-free in the UK)

I ask because I'm facing a situation with my student loans for my masters (I took these out from FedDirect loan program).

I know I'm extremely lucky to be an American student on a full UK studentship but I'm barely scraping by, let alone able to pay off the interest OR principle on my USA loans.

Unfortuantely I don't expect this situation to get a lot better in the next 2-3 years while I finish my PhD. Part of the stipulation of my research studentship/grant is that I do not work part-time or at all outside my university work, so the income they give me is all I have and its barely enough to live on.

The USA Gov loan folk put me in temporary forbearance so I could process my 'still in school' status and delay repayment.

However, it was realized that this is not going to work because my university in the UK is not a partner with the USA FASFA/Direct Loans folk so they don't recognize it as a school.  

Now they are saying I should use one of the repayment plans that says I an unemployed and/or make 0 taxable income.

But can I do this as I DO get money every month, from the UK university, to live on?

Thanks anyone that could direct me where to find out if this income is indeed taxable.

C

When you complete your taxes, there should be a line for scholarships/grants which is where you would put this information, not on the income line. Whether or not it's taxable would depend on your personal tax situation, but if that's all your claiming, then you most likely won't owe on it. You definitely have to claim it when you do your taxes, but you don't claim it as income as it's not income. You're not an employee of the university.

In my previous position, I dealt with students who were receiving a stipend (tax-free for US students), so we had questions on this all of the time.

Eeesh. Well, I didn't file last year, as I didn't make any money or have any investments or savings, so I wasn't sure what the point was- other than maybe to get some money back on paying interest on my old undergraduate student loans. But they're so little I thought it'd be a trivial amount. I started my PhD in January 2013 so should I have filed for 2012-2013?

That's the thing, is I know its not 'income', its a studentship/grant, but I do have a Staff card for my university and a Staff No/payroll puts the money in my account. It might be an idiosyncrasy of the particular uni I attend (The Open University) because they don't have traditional students,  just distance learners OR postgraduate students. I think they've set it up that their postgraduate students piggyback on the staff system. But none of that should matter to the US DirectLoans folk. I just must admit my blood runs cold at the idea of signing a form that says I have no taxable income without seeing somewhere in print that that is the case.

So you've worked with US Tier 4 students that were on a tax-free stipend? Do you know if there are any forms or documentation online for that sort of situation?

*edited to clarify: I mean US tax-free. I know they're tax-free in the UK

Yes, you should have filed, even if your income is 0.

I'm not sure what type of loan you have, but I found this website from the Dept of Education. http://studentaid.ed.gov/repay-loans/deferment-forbearance
If you're not comfortable NOT calling your fellowship income, you could potentially be eligible for forbearance based on this:
The total amount you owe each month for all the student loans you received is 20 percent or more of your total monthly gross income (additional conditions apply).

You can always call the IRS help line and ask.

I worked in the US with US citizens and foreign students in receipt of stipends. Just as an FYI, our fellows had ID badges and their money was deposited into their accounts, but it was via a different system than employee payroll. They wouldn't know that unless there was an issue with their payment.
 

I am slightly surprised that you have not filed to claim the American Opportunity Credit so that the US government funds some of your living costs via a tax refund. Have you considered this?

When you complete your taxes, there should be a line for scholarships/grants which is where you would put this information, not on the income line. Whether or not it's taxable would depend on your personal tax situation, but if that's all your claiming, then you most likely won't owe on it. You definitely have to claim it when you do your taxes, but you don't claim it as income as it's not income. You're not an employee of the university.

This is not quite correct.

Firstly, whether a scholarship is US taxable depends on the nature of the scholarship, not on the recipient's tax situation.

Second, there is no line on Form 1040 for scholarships. If a scholarship is taxable, it should be reported on line 7 "Wages, salaries, tips, etc"; if not, it does not need to be reported at all.

Third, the OP may qualify for the foreign earned income exclusion, which can be used to then exclude her (presumably otherwise taxable) scholarship from her US taxable income. My wife did her PhD in the UK and this is how we treated her scholarship grant, so we ended up paying no US tax on it.

Lastly, I'm not sure how this will affect the OP's student loans, but be aware that quite a few UK universities are in fact registered for the US federal student loan program. Here is the US Department of Education's list of universities outside the US that are registered. They say it is updated quarterly. If the OP has not reviewed the latest version of this list, she should do so now.

While I am not a tax advisor, I provide some citations here to the IRS' own publications supporting this position.

Here is the IRS published guidance on which elements of scholarships are taxable or tax-free, from IRS Publication 970, Chapter 1:

A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.

A scholarship or fellowship is tax free only to the extent:

   It does not exceed your expenses;
   It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and
   It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. (But for exceptions, see Payment for services, later.)

Use Worksheet 1–1 to figure the amount of a scholarship or fellowship you can exclude from gross income.

Candidate for a degree.   You are a candidate for a degree if you:

   Attend a primary or secondary school or are pursuing a degree at a college or university, or
   Attend an educational institution that:
      Provides a program that is acceptable for full credit toward a bachelor's or higher degree, or offers a program of training to prepare students for gainful employment in a recognized occupation; and
      Is authorized under federal or state law to provide such a program and is accredited by a nationally recognized accreditation agency.

Eligible educational institution.   An eligible educational institution is one whose primary function is the presentation of formal instruction and that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.

Qualified education expenses.   For purposes of tax-free scholarships and fellowships, these are expenses for:

   Tuition and fees required to enroll at or attend an eligible educational institution, and
   Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

Expenses that do not qualify.   Qualified education expenses do not include the cost of:

   Room and board,
   Travel,
   Research,
   Clerical help, or
   Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

Payment for services.   Generally, you cannot exclude from your gross income the part of any scholarship or fellowship that represents payment for teaching, research, or other services required as a condition for receiving the scholarship. This applies even if all candidates for a degree must perform the services to receive the degree.

IRS Publication 54 describes the qualification criteria for the foreign earned income exclusion, which can cover taxable scholarship income:

Scholarships and fellowships.   Any portion of a scholarship or fellowship grant that is paid to you for teaching, research or other services is considered earned income if you must include it in your gross income.

Yes, you should have filed, even if your income is 0.

Actually you don't have to file a return if your income is below a certain threshold depending on your age/filing status/dependent status/etc. (and you don't have any other unusual circumstances that would require you to file). The same filing requirements that apply for those living in the U.S. apply to citizens living elsewhere as well.

This is not quite correct.

Firstly, whether a scholarship is US taxable depends on the nature of the scholarship, not on the recipient's tax situation.

Second, there is no line on Form 1040 for scholarships. If a scholarship is taxable, it should be reported on line 7 "Wages, salaries, tips, etc"; if not, it does not need to be reported at all.

Third, the OP may qualify for the foreign earned income exclusion, which can be used to then exclude her (presumably otherwise taxable) scholarship from her US taxable income. My wife did her PhD in the UK and this is how we treated her scholarship grant, so we ended up paying no US tax on it.

Lastly, I'm not sure how this will affect the OP's student loans, but be aware that quite a few UK universities are in fact registered for the US federal student loan program. Here is the US Department of Education's list of universities outside the US that are registered. They say it is updated quarterly. If the OP has not reviewed the latest version of this list, she should do so now.

While I am not a tax advisor, I provide some citations here to the IRS' own publications supporting this position.

Here is the IRS published guidance on which elements of scholarships are taxable or tax-free, from IRS Publication 970, Chapter 1:
IRS Publication 54 describes the qualification criteria for the foreign earned income exclusion, which can cover taxable scholarship income:

Also, if you use tax preparation software it will guide you through this and put the information in the correct place. It will ask about education funds and how they are used. You can even start using Turbo Tax, for example, online for free. You'd only have to pay if you're going to actually file. However, you can get a good idea how it would suss out.

I appreciate your insight. I apologize for my errors. I'm glad there's someone on here who has experience.

Also, just as an aside, we always told our students not to report their stipend as income or a wage, because they would not receive a W-2. But, that doesn't affect you.

Also, if you use tax preparation software it will guide you through this and put the information in the correct place. It will ask about education funds and how they are used. You can even start using Turbo Tax, for example, online for free. You'd only have to pay if you're going to actually file. However, you can get a good idea how it would suss out.

In fact, anyone with adjusted gross income under $57,000 can file a tax return free of charge using a number of tax software offerings, including TurboTax. You must start from this IRS page though. You will not get the same offer by going directly to TurboTax or another vendor.

Also, just as an aside, we always told our students not to report their stipend as income or a wage, because they would not receive a W-2. But, that doesn't affect you.

There are many forms of income (in addition to scholarships) that might not be reported on a W-2. This does not in any way affect the taxpayer's reporting obligations.

I appreciate your insight. I apologize for my errors. I'm glad there's someone on here who has experience.

Glad I was able to be helpful! I am not a tax professional, but I have read the relevant sections of the IRS guidance over the years so that I could complete my own tax returns. I would always suggest that anyone required to comply with rules such as these would be wise to make sure they have read and understood the rules for themselves. While there are certainly aspects of the US tax system that defy logic, my own opinion is that the IRS guidance in this area is pretty clearly written and easy to follow.

Yes, you should have filed, even if your income is 0.

I'm not sure what type of loan you have, but I found this website from the Dept of Education. http://studentaid.ed.gov/repay-loans/deferment-forbearance
If you're not comfortable NOT calling your fellowship income, you could potentially be eligible for forbearance based on this:
The total amount you owe each month for all the student loans you received is 20 percent or more of your total monthly gross income (additional conditions apply).

You can always call the IRS help line and ask.

I worked in the US with US citizens and foreign students in receipt of stipends. Just as an FYI, our fellows had ID badges and their money was deposited into their accounts, but it was via a different system than employee payroll. They wouldn't know that unless there was an issue with their payment.

Thanks for your response. I don't think its required to file if you make 0 whether you live abroad or not?

The 20% thing- that's not actually accurate. My loan payment is about $1,000 a month and my UK stipend is £1100. So loan payment is less than 10% given currency. (The £1100 is not enough for me to live on as it is- I'm having to take out additional debt here in the UK and I don't have enough credit history to take out enough to cover my US loans as well.)

I never even thought to call them. I just assumed I'd never in a million years be able to get a human on the phone to answer my personal situation question?

I'm fairly sure at some point in the past my school made the administrative decision to have fellows/Phd students slapped on to the existing staff payroll system and so that's just how it goes there. I wouldn't think the particulars would make a difference but it does serve to make me more uncomfortable about saying 'zero income' as I'm on payroll with a staff number.

I am slightly surprised that you have not filed to claim the American Opportunity Credit so that the US government funds some of your living costs via a tax refund. Have you considered this?

I've never heard of this.

Keep in mind my school in the UK is not recognized as a school in the USA.
This isnt' because they are some shoddy backyard thing- they are one of the biggest research organizations/universities in Europe. Its just because they refuse to pay for/manage the overhead to participate in the US Fed Loan scheme. They barely ever have American students that can't self-fund so it would result in a big financial loss to them to be apart of the program. At least, that's what I'm told.

So I'm guessing that would discount any tax credit having to do with education as the US government doesn't recognize me as in education. That's why I can't get additional FedDirect loans from them, or use an in-school forbearance on my existing ones.

(Its a real headache and believe me I've considered switching universities. But that would be a costly nightmare in it of itself, and to complicate matters I'm disabled and this particular school has proved to be extremely accommodating about that. And the research group there is one of the only in the world doing research I'm doing. And they've given me a full tuition waive and stipend. So I'm determined to continue making it work, as annoying as it is that the US Gov considers not in education.)

Also, just as an aside, we always told our students not to report their stipend as income or a wage, because they would not receive a W-2. But, that doesn't affect you.

Hmm- then where else do you report it on the 1040 if, as was posted above, there is not a specific line for scholarships? I'm slightly confused- don't you  have to declare it as income and then let them decide if its taxable or not?

This is not quite correct.

Firstly, whether a scholarship is US taxable depends on the nature of the scholarship, not on the recipient's tax situation.

Second, there is no line on Form 1040 for scholarships. If a scholarship is taxable, it should be reported on line 7 "Wages, salaries, tips, etc"; if not, it does not need to be reported at all.

Third, the OP may qualify for the foreign earned income exclusion, which can be used to then exclude her (presumably otherwise taxable) scholarship from her US taxable income. My wife did her PhD in the UK and this is how we treated her scholarship grant, so we ended up paying no US tax on it.

Lastly, I'm not sure how this will affect the OP's student loans, but be aware that quite a few UK universities are in fact registered for the US federal student loan program. Here is the US Department of Education's list of universities outside the US that are registered. They say it is updated quarterly. If the OP has not reviewed the latest version of this list, she should do so now.

While I am not a tax advisor, I provide some citations here to the IRS' own publications supporting this position.

Here is the IRS published guidance on which elements of scholarships are taxable or tax-free, from IRS Publication 970, Chapter 1:
IRS Publication 54 describes the qualification criteria for the foreign earned income exclusion, which can cover taxable scholarship income:

Well, this is discouraging for me. I'm confused but it sounds like they might consider my UK studentship taxable, point blank income JUST because my damn university doesn't participate in their loan scheme. They are an accredited international university, but they don't participate in the Fed Direct Loan program.

So because if this it looks like I not only am not eligible for federal loans to support my education, but I am also not eligible for existing loan in-education forbearance AND am going to be taxed on the living stipend they give me that is not even intended to be enough to live on (their words- for London its not enough- just intended to get you 'almost there').

I seem a bit stuck here. I can't use the >20% forbearance but again, this is misleading. The living stipend money I get is in a currency worth 1.6 times USD, and also I'm doing my degree in London. So £1100 is pennies in context but on paper disqualifies me from the >20% forbearance. Dead ends everywhere maybe.

So because if this it looks like I not only am not eligible for federal loans to support my education, but I am also not eligible for existing loan in-education forbearance AND am going to be taxed on the living stipend they give me that is not even intended to be enough to live on (their words- for London its not enough- just intended to get you 'almost there').

Please reread my original post, which you quoted. I stated: "The OP may qualify for the foreign earned income exclusion, which can be used to then exclude her (presumably otherwise taxable) scholarship from her US taxable income."

Please also read the IRS guidance on the qualifying criteria for the foreign earned income exclusion. This topic has also been discussed many times previously on this forum and elsewhere. If you do qualify, you will pay zero US tax on your scholarship. You must file a US tax return in order to claim the exclusion, and you may still have to pay US tax on other income that you are not entitled to exclude (such as US source income and unearned income such as interest and dividends).

I don't know whether excluded foreign income is counted for student loan purposes, but I imagine it might be - can anyone else answer?

Please reread my original post, which you quoted. I stated: "The OP may qualify for the foreign earned income exclusion, which can be used to then exclude her (presumably otherwise taxable) scholarship from her US taxable income."

Please also read the IRS guidance on the qualifying criteria for the foreign earned income exclusion. This topic has also been discussed many times previously on this forum and elsewhere. If you do qualify, you will pay zero US tax on your scholarship. You must file a US tax return in order to claim the exclusion, and you may still have to pay US tax on other income that you are not entitled to exclude (such as US source income and unearned income such as interest and dividends).

I don't know whether excluded foreign income is counted for student loan purposes, but I imagine it might be - can anyone else answer?

Thank you, that's what I'm trying to figure out now- if I qualify.
I don't have US investments or anything- just debts that I pay down including fed student loans.

So its seeming like I have no chance of qualifying for American Opportunity or Lifetime Learning because my educational institution is not on the list that the US loans to/recognizes. But if I qualify for foreign tax exclusion and submit a 2012 return I'd at least break even (owe no US taxes) and perhaps be able to declare my UK 'income' as non-taxable with peace of mind?