U.S. citizen studying abroad as international grad student. How should I report my grants/scholarships vs. tuition as foreign income?

[anonymous761]

Hello. I graduated my US undergrad institution in 2020, and transitioned to virtually attending a grad school in Canada for the remainder of 2020 (meaning that I lived in the US for the full year). I have two tax documents from my Canadian institution, a T4A (reporting scholarships/grants), and a T2202 (reporting tuition). However, I was never actually paid any money because I did not have a Canadian bank account until I moved to Canada in 2021 (although there was an option for me to have them write an international check, which I did not do). How should I report this on my taxes as foreign income? Do I report just the scholarships and grants, or do I take the difference between the two (since I never actually saw the money that went into tuition)? Do I have to report it at all? Further, how should I convert the CAD to USD? Do I just take the conversion rate from a quick google search?

[Hal_Al]

Report only the difference between the  T4A (scholarships/grants), and the T2202 (tuition) as income. That amount can be further reduced by cost of "course materials".  Yes, a googled conversion rate is close enough. 

In TurboTax, enter the scholarship  in the educational expenses section, not the income section. This is necessary to get it on the right line of form 1040 (line 1 with the notation SCH). 

From IRS Publication 970:

A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an 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 regularly carries on its educational activities*.

Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, 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.

* Note that for tax free scholarship (unlike eligibility for a tuition credit), the institution does not have to be eligible to participate in a student aid program administered by the U.S. Department of Education. So, foreign schools count. 

[anonymous761]

Thanks for the help! Just a clarifying question to make sure I have this right: are you saying that the difference should be listed as foreign income, then the scholarships be listed in the educational expenses section? Or are you saying that the difference should be reported in the educational expenses section?

[Hal_Al]

Q. Are you saying that the difference should be listed as foreign income?

A.  No. It is not foreign income.  More specifically, it is not foreign earned income*.  So, it is not reported as such.

Taxable scholarship is reported on line 1 of form 1040 with the notation SCH (on the dotted line to the left of line 1).  Scholarships must  be entered in the educational expenses section to get TurboTax (TT) to make that entry on line 1*.  If you enter it in the income section, it ends up on line 8 of schedule 1 as "other income".  For most people, that may not matter. Either place is fine.  But if you are somebody else's dependent, it may (probably) affect the calculation of your standard deduction(*)(**).

Q. Are you saying that the difference should be reported in the educational expenses section?

A.  Yes and no. Normally, you enter the 1098-T and let TT do the calcs.  In your case you have a choice, you can enter  your expenses, tuition, books etc, and the total scholarship and let TT do it's  thing.  Or you can just enter the difference, under scholarship. 

*Even though taxable scholarship income gets entered on the wages line (Line 1 of form 1040) it is  not treated as earned income, for most purposes.  Hence, the SCH notation. But taxable scholarship is treated as earned income for the  purpose of calculating a dependent's standard deduction (hence, the line 1 entry). 

**If you are not (or cannot be) someone else's dependent, for simplicity (the education interview can be complicated) you can enter the difference (net taxable scholarship) as income at:

- Federal Taxes tab

 - Wages & Income

 Scroll down to:

   -Miscellaneous Income

         -Other Reportable income

For description, enter "Taxable Scholarship".  That will put it on line 8 of Schedule 1 and end up on line 8 of form 1040.

[Hal_Al]

2nd reply edited

[anonymous761]

Thank you so much for all of your help! I can (and will) be claimed as a dependent, so I listed the difference as an additional scholarship in the Federal > Deductions and Credits > Education > Expenses and Scholarships (Form 1098-T) > Scholarships and Grants (for all schools) section. Out of curiosity, I also tested putting it in the other income section, and sure enough I would have had to pay a significant amount more in taxes.

[Good23]

Is scholarship money taxed in the USA if it is from a foreign source (Canadian university?)

[DaveF1006]

Yes, it is taxable income in the US if the income exceeds educational expenses.

@Good23