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Please consider the information on this
page as advice to guide you through taxation in the US. The Fulbright
Commission cannot assume responsibility for the accuracy of this information.
(Die Angabe erfolgt ohne Gewähr.) It is the responsibility of the
individual grantees to clarify their own tax obligations as need be.
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1. Fulbright scholarships, scholarships
granted by the (Austrian) Ministry of Science and Research and and
other scholarships are generally not taxable in Austria. The Ministry
of Finance (Erlass des BMF vom 29. 3. 1996, AÖF 1996, 64; Lohnsteuerrichtlinien
1999, Rz 33, 34) has a different opinion. The quoted Erlass and
Lohnsteuerrichtlinien are not entirely clear, though, and their
rulings are at least questionable. In the worst case one might consider
to challenge their validity.
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2. Under U.S. federal tax law foreign students
with F, J, M or Q visas are considered nonresident aliens for
up to 5 years without specific further requirements. IRC sec 7701(b)(1)(A)(ii);
7701(b)(3)(D)(i); 7701(b)(5)(A)(iii); 7701(b)(5)(D). Nonresident
aliens are taxable only on certain categories of income, in the
case of students e.g. salaries, wages, interest (except interest
from bank accounts) , certain scholarships or fellowships etc.
IRC sec 2(d), 871, 1441(b).
Qualified Scholarships (see 3., below) are not taxable. IRC sec
871(c), 1441(b)(1), 117(a).
Scholarships other than Qualified Scholarships may be taxable
if no double taxation treaty (see 4., below) is applicable.
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3. Scholarships received by a person who is a
candidate for a degree at an educational organization (e.g. a
university) are not taxable in the U.S. to the extent they are
used for tuition, books, supplies and equipment required for enrollment,
attendance or instruction at such educational organization ("Qualified
Scholarship"). IRC sec 117, 170(b)(1)(A)(ii). They are taxable
if the individual is not a candidate for a degree or to the extent
they cover living expenses, travel expenses etc.
The Fulbright scholarship and part of the scholarship paid by
the Ministry is supposed to cover tuition and expenses for books
etc. and, if granted for a program with a degree, is therefore
not taxable in the U.S. However, payments received from the Ministry
for living or travel expenses are taxable (unless a double taxation
treaty (see 4., below) is applicable).
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4. The Double Taxation Treaty between the U.S.A.
and Austria (Art 20) provides that payments made to an Austrian
resident for the purpose of full-time education or training cannot
be taxed in the U.S. provided that they are sourced outside of
the U.S. and are made for the person's maintenance, education,
or training.
Therefore, even if payments by the Ministry for maintenance (=living
expenses) or travel expenses are principally taxable in the U.S.
they are exempt by virtue of the tax treaty which "overrides"
the applicable IRC provisions.
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5. To simplify things a little bit, the key conclusions
of the foregoing are: If you only receive a Qualified Scholarship
(see 3., above) you are not taxable in the U.S. If you receive a
scholarship for full-time education or training from Austrian sources
you are also not taxable in the U.S. because of the tax treaty.
In all other cases you might be taxable depending on the circumstances.
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6. If a scholarship is not taxable in Austria
one does not need to file a tax return or disclose the scholarship
there.
One should not forget, though, that expenses in connection with
the studies abroad might be deductible from gross income as "Betriebsausgaben"
or "Werbungskosten" (Kosten der Fortbildung; §
4 Abs 4 Z 7, § 16 Abs 1 Z 10 EStG) so that an appropriate
claim should be made in the tax return. This can reduce tax liability
substantially.
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7. IRC sec 6012 and Reg. § 1.6012-1(b)(1)(i)
require a nonresident alien to file an income tax return for the
previous year until April 15 of the following year (IRC sec 6072(a))
if the individual receives any US source income which is subject
to taxation, regardless of the amount.
If there is no such taxable income one is not required to file
a tax return (Reg. § 1.6012-1(b)(1); Publication 519).
Regulation sec 301.7701(b)-8(a)(2) requires an individual claiming
nonresident alien status to file a statement to explain the basis
for such claim. Such statement does not only ensure exemption
from tax of U.S. sourced income. It is also important to prevent
U.S. taxation of worldwide income, including income from Austrian
sources, in particular income from a business or salaries received
before or after the studies in the same calendar year (!); however,
even though failure to file would probably not affect nonresident
alien status, Reg sec 301.7701(b)-8(d)(1), it is strongly advisable
in any case that one files such a statement! Moreover, willful
failure to supply any information to the IRS would be subject
to heavy fines, IRC sec 7203. This statement has to be made on
Form 8843 (Regulation sec 301.7701(b)-8(b)(2)(i)). Printed copies
of the forms are available from the IRS Forms Distribution Centers.
They may be ordered by calling 1-800-TAX-FORM (1-800-829-3676).
File all statements to:
Internal Revenue Service Center Philadelphia, PA 19255
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8. There might also be a tax liability or filing
requirements under state tax law.
Under California state tax law for instance, Qualified Scholarships
are tax exempt as well. CRTC sec 17131. Caution: the U.S.-Austrian
tax treaty does not apply to state tax (Art 2 Abs 2 lit a). Thus
scholarships that are tax exempt by virtue of the U.S. - Austria
Double Taxation Treaty on the federal level might be taxable under
state tax law.
However, under California state tax law nonresident aliens are
only taxable with income from sources within California. CRTC
sec 17951. There are no filing requirements if there is no taxable
income in California. CRTC sec 18507.
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9. All students who have enrolled in the GRANTAX
program provided by IIE do not need to file any statements. All
filing requirements will be taken care of by GRANTAX.
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10. An alien may only depart from the US upon
procuring a certificate of compliance ("Sailing Permit")
which confirms that the alien has complied with all the obligations
imposed by the income tax laws. IRC sec 6851(d).
However, under Regulation sec 1.6851-2(a)(2)(ii)(A) a Sailing
Permit is not required for (among others) students with F, H-3,
H-4, J, M or Q visas who have received no gross income from sources
inside the U.S. other than
· allowances to cover expenses incident to study or training
in the US (including expenses for travel, maintenance, and tuition)
(exception does not apply to students with M visas);
· the value of any services or accomodations furnished
incident to such study or training (exception does not apply to
students with M visas);
· income derived in accordance with the provisions that
apply to the alien's visa; · interest from bank accounts.
Due to these exceptions Fulbright students will normally not
need to have a Sailing Permit.
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11. Questions?
a. The Internal Revenue Service (IRS) is available on the net,
http://www.irs.gov/.
Or call the IRS at 1-800-829-3676, 1-800-829-1040
Customer Service (international): (202) 874-1460
Tax Fax: (703) 368-9694
Internal Revenue Service Publication 519 (U.S. Tax Guide for
Aliens), which can be obtained from the IRS at no cost, gives
you valuable information in greater detail.
b. The California Franchise Tax Board is available on the net,
http://www.ftb.ca.gov/. Or
call at 1-800-852-5711.
c. Also, most universities provide workshops on tax issues or
individual advice.
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© March, April, May 1999, January 2001, Gerhard O. Rettenbacher,
LL.M. Tax (1999), University of San Diego
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