How to report a foreign Postdoc fellowship?

[_Maria_]

I am receiving a postdoc fellowship from a German Institution. I reside in the US, working as a postdoc remotely. The fellowship is tax-free in Germany. How do I report it on my tax form so that is stays tax-free?

If I report it as a foreign income, I have to pay taxes on it. Thank you.

[pk]

@_Maria_ , are you a German citizen?  What visa are you on ? when did you enter the USA ?  How did you file your return in 2018?

Generally IRS would consider your work place to be your tax home and as such the income from Germany is not foreign income because you are performing the work while physically here in the USA.  I need the answers because I sort of remember that under certain conditions these fellowships are taxable only by the issuing state if the recipient  was a resident of that state immediately prior to coming to the USA .  Once I get your answers then I will go back and  verify the tax treaty conditions.

[_Maria_]

Thanks a lot for your input! 

I have no German citizenship, here in the USA I am a permanent resident since 2016. The fellowship started in 2019, in Germany it is non taxable, neither for me nor for the Institute providing it.  

[_Maria_]

I checked with the Institute issuing  the Fellowship grant. The information provided by them might help to understand the situation. They claim that according to the German income tax law:

The precondition for tax exemption is that 
a) the stipend does not exceed an amount necessary to fulfil the research task or to cover living expenses and training needs and are awarded in accordance with the guidelines issued by the funding source,
b) the recipient is not obliged to provide a specific scientific or artistic achievement or service or to perform a specific employee activity in connection with the grant.

[pk]

@_Maria_ , thank you for your replies with all the info.  Even if you are a permanent resident of the USA, you are still a citizen of another country.  If you are German then  the treaty conditions would apply.  Whichever country your citizenship  ( your passport , even if expired) is will dictate the treatment of the "foreign income"  Please tell me .

[_Maria_]

I have a valid Russian passport. Never had a German one.  Thank you for trying to understand my situation.

[pk]

@_Maria_ , for Russian students/researchers the tax treatment of grants, allowances or other similar payments is covered under article 18 of the US-Russia Tax treaty.  These are exempt from US taxation as long as the Russian citizen is  in  the USA "temporarily  present" in the USA   for "..research...". It further states  that  " such exemption ... shall apply for such period .....as ordinarily necessary......  except that ...  no exemption for training  or research shall extend a period exceeding five years".   Thus  if you have been here for more than five years then the exemption is not valid.  Another issue is that this treaty  and on this subject is only applicable  for a citizen/ resident  whom is in the USA  temporarily --- thus your change of status to Green Card would negate this exemption.

Therefore my conclusion is that , absent any other facts & circumstances, your  fellowship grant is to be treated as if you are US citizen/resident without benefit of US-Russia Tax treaty.  Thus  this grant will be treated as income to the extent  that the funds are not used for  training or education.  Your living expenses  are definitely to be treated as income and therefore taxed  by the Feds and the State -- both will consider this income as US sourced / in-state sourced.

This is not what you wanted to hear but ....

Is there more I can do for you

pk

[_Maria_]

Yes, it is definitely not what I expected but thank you for nailing this down.

Could you please direct me where in the TurboTax to enter this income? 

[pk]

@_Maria_ , thank you for taking the bad news so graciously.   There are other places to enter this fellowship but for ease , I would enter this as "other" income and annotate the line as  "Research Fellowship"

Good Luck 

[_Maria_]

Dear pk,

another tax year, and I am back with the same situation, now when I re-read what you entered, I see that actually I do have the right to exempt the fellowship from the tax report, as it is paid exactly to be  "used for  training or education", unless I need to provide documental proof of these facts, but do I?  p.s. last year i reported it

[DaveF1006]

According to this link from postdocfellowhip.org, "Virtually all postdoc fellowships funded from U.S. sources are subject to income tax because they pay for living expenses. However, often fellowships and traineeships are not subject to automatic tax withholding." The same rules would apply for a foreign Postdoc fellowship." In your case, you have completed all of your education and you are now gaining additional skills to be an effective researcher in your field of study.

[_Maria_]

DaveF1006, thanks a lot for reply! Do I understand correctly the link you provided, that I still need to report the fellowship and pay the tax? what I find weird is that the German source of my fellowship considers it tax free (see above) but in the US  I need to pay 30% of it on taxes anyway

[DaveF1006]

I know it seems harsh. Just keep in mind the tax code can vary from one country to another. Meanwhile, congratulations in receiving your doctorate and good luck in your future endeavors.

[pk]

@_Maria_ , I went through the above interactions  including those of the year before and I am not sure where we are this year -----  what I get is that you a Russian citizen( yes? ), with Residency in the USA ( Green Card ? ) have  had Post Doc scholarship from Germany and wanting to know whether this  stipend/grant amount is taxable in the USA and  how to report this.   I saw @DaveF1006  's answer  on this topic.  Could you please reiterate your situation ( immigration status, citizenship,  marital status,  source of stipend, other earnings, employment/training/research -- school or private, etc. etc. ) and any  changes from 2019, -please ?

[_Maria_]

everything is the same as was last year:  Russian citizenship, Green card and residence in the US, German postdoc fellowship from a non-university research organization, no other income, filing taxes jointly with my husband, who has a W-2.

The fellowship is tax free in Germany because a) it does not exceed an amount necessary to fulfil the research task or/and to cover living expenses and training needs b) the recipient is not obliged to perform a specific employee activity in connection with the grant.