Federal Income TaxScholarships/Fellowships for taxation purposes are broken into two categories: Qualified and Non-Qualified. Internal Revenue Code Section 117 states that Qualified scholarship/fellowship payments are not included in the student's income for federal tax purposes and are not subject to federal income tax withholding. Qualified Scholarships are defined as that portion of the scholarship used for:
- Tuition and fees required for enrollment or attendance, or
- Fees, books, supplies and equipment required for courses of instruction
- Room, board, travel
- Student health and pharmacy charges
- Amounts paid for living expenses (no services required)
- the Non-Resident Alien is temporarily in the U.S. in F, J, M or Q status
- the recipient must be a "Candidate for a Degree"- present for studying, training or research.