My spouse is a PhD student at a foreign university (no U.S. tax treaty, no EIN), with a small scholarship (<$10K) paid in foreign currency to a foreign bank account. It covers tuition and supports research directly related to his degree. He was in the U.S. all of 2024 doing this remotely. TT has reported this on the 1040 line 1h, but I’m not sure that’s correct. We follow the instruction and it seems we couldn't use 2555. Should it go on Schedule 1 instead — or be reported at all? Should we amend the return since we just eFile it?
If needed we used TT delux (online version).
Yes, it does need to be reported. Reporting it on line 1h of form 1040 is OK. Line 8r of Schedule 1 is the more appropriate place. It essentially gets taxed the same either place (nothing will change if you amend).
A little more discussion at:
Yes, it does need to be reported. Reporting it on line 1h of form 1040 is OK. Line 8r of Schedule 1 is the more appropriate place. It essentially gets taxed the same either place (nothing will change if you amend).
A little more discussion at:
Thanks a lot, I have a follow-up question. During a live chat with a TurboTax expert, they said that for state taxes, the federal income is used as the base, so you don't need to add the scholarship (foreign source) separately. We couldn't find a way to add it manually when filling out the state return. Should I amend it next year or as soon as possible?
Also, just to clarify, the full amount of the scholarship, including the portion that covers tuition, is already reported under line 1h on the federal return.
Q. TurboTax expert said that for state taxes, the federal income is used as the base, so you don't need to add the scholarship (foreign source) separately. We couldn't find a way to add it manually when filling out the state return. Should I amend it next year or as soon as possible?
A. Neither. As the TT expert said, it's already included in the federal AGI that transfers to the state return. You don't add it again to the state return ("The full amount of the scholarship, including the portion that covers tuition, is already reported under line 1h on the federal return").
Q. Should we have included the portion that covers tuition in the taxable amount?
A. Probably. Earlier, you said the grant was paid in foreign currency to a foreign bank account. Tax free scholarship is not usually paid in cash.
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*.
A scholarship or fellowship grant is tax free only to the extent:
• It doesn't exceed your qualified education expenses;
• It isn't designated or earmarked for other purposes
(such as room and board), and doesn't require (by its
terms) that it can't be used for qualified education expenses; and
• It doesn't represent payment for teaching, research, or
other services required as a condition for receiving the
scholarship."
*Enter your school at the link below, to see if it's on the dept. of education list.