If you are a foreign national student-athlete receiving a U.S. source scholarship (e.g. scholarship paid from Ball State University, a U.S. government agency or any other U.S. entity) you should be aware that U.S. tax law may require the University to report the amount awarded to you to the Internal Revenue Service (“IRS”) on a Form 1042-S. Additionally, tax law may require the University to withhold federal income tax from such scholarships.
The payment of a qualified scholarship to a foreign national is not reportable and is not subject to withholding. A qualified scholarship means any amount paid to you as a scholarship to the extent that, in accordance with the conditions of the award, the amount is to be used for the following expenses:
- Tuition and fees required for enrollment or attendance at an educational organization, and
- Fees, books, supplies, and equipment required for courses of instruction at the educational organization.
Amounts that do not represent a qualified scholarship are subject to U.S. taxation and reportable on Form 1042-S. For example, those parts of a scholarship devoted to travel or room and board are subject to withholding. Taxable amounts will be determined each month of the semester. This tax will be charged to your student account and will become part of your total financial obligation to the University.
While Internal Revenue Code section 1441 requires the University to withhold at a rate of 30%, a reduced withholding rate of 14% is available for individuals temporarily present in the United States as a nonimmigrant under subparagraph (F), (J), (M), or (Q) of section 101(a)(15) of the Immigration and Nationality Act and which are incident to a qualified scholarship. In addition to the 14% withholding for Federal income tax purposes, there will be a 5% withholding done for Indiana income tax purposes making scholarships subject to a total 19% withholding rate.
In addition to the lesser withholding rate due to their immigration status, residents of certain countries may be entitled to further reduced tax rates, or exemption from tax, under an applicable tax treaty between their county and the United States. Note that an individual taxpayer identification number (ITIN) or a Social Security number (SSN) is required to claim a treaty to lessen the withholding due on taxable scholarships. If a student-athlete will not be employed by the University, they may be ineligible for a SSN. In this case, University Tax Compliance can assist the student-athlete with applying for an ITIN. Student-athletes may schedule an appointment for ITIN assistance by emailing firstname.lastname@example.org.