How to report German tax-free fellowship?

[Marcelx90]

I'm from Germany and a US-resident for tax purposes for 2020. Last year, I received income from a US university (shown on my W-2), which was later replaced by a fellowship from Germany (not shown on my W-2).

According to Article 20, #3, of a tax treaty between Germany and the US, a German fellowship given to a researcher should be exempt from US taxes.

So, my question is, along with Form 1040 (for my US income), what other forms do I need to file to report that I received an external fellowship that is free of tax?

Any help is appreciated!

[npierson7]

Yes, German fellowship given to you should be exempt from US taxes and can only taxable to the extent that it exceeds your education expenses. You don't need to file additional forms with your tax return.  

[Marcelx90]

Thank you very much for your quick reply, @npierson7 

Are you sure that I don't need to file additional forms? I feel like I need to inform IRS about the fellowship in some way since I will not add it on my Form 1040 (or should I?). I thought about attaching forms like 8833 or W-9 to claim a tax treaty for my fellowship. It's just complicated to figure out what might be the right one for my situation.

E.g. for W-9, it states:

"Nonresident alien who becomes a resident alien: [...] If you are a U.S. resident alien who is relying on an exception contained in the saving clause of a tax treaty to claim an exemption from U.S. tax on certain types of income, you must attach a statement to Form W-9 that specifies the following five items. 1. The treaty country. Generally, this must be the same treaty under which you claimed exemption from tax as a nonresident alien. etc."

[npierson7]

It is unclear if you must file Form 8833 when you reporting your foreign fellowship. You certainly don't need  to file W-9 with your tax return.  It won't hurt you to file a Form 8833 to claim the exception, however TurboTax does not support Form 8833, so you cannot e-file. You may use TurboTax to prepare your return, but you will need to print out your tax forms and mail the returns along with the form 8833 and a copy of your tax documents.

How to report Tax Treaty Exclusion in TurboTax:

• With TurboTax open select  Wages & Income.
• Scroll down to Less Common Income and select Miscellaneous Income.
• On the next page select Other reportable income.
• On the page Other Taxable Income enter Tax Treaty Exclusion in the description and enter  your exclusion as a negative amount
•  This will put your Tax Treaty Exclusion on Schedule 1 Line 21 of your 1040.

[Marcelx90]

Thank you, @npierson7 

Maybe a quick additional question:

When I file my tax return for 2021 next year, I will basically just have to report my fellowship as the only income (which will still be exempt from US taxes) and presumably a very small amount of taxable interest from my US bank accounts. I won't even receive a W-2 form.

As far as I see, I wouldn't need to file anything because I will get less than $12,400 of taxable income in 2021. Is this correct?

Or should I file Form 1040, which will just show the taxable interest, along with Form 8833 to show the claim of the tax treaty again?

[npierson7]

Yes, that is correct. You will have to report your interest income regardless of the amount along with the Form 8833 and your fellowship income. 

[Marcelx90]

Just for the sake of clarity,

I need to file Form 1040 although my taxable income is just the interest of my bank account?

According to the instructions of Form 1040, it states:

"If your filing status is Single, [...], then file a return if your gross income** was at least $12,400.

**Gross income means all income you received in the form of money, goods, property, and services that isn't exempt from tax."

My fellowship is exempt from tax, so it should technically not count as gross income according to this line.

The interest of my bank is much less than $12,400. So, I thought I wouldn't need to file Form 1040?!

Is there a mistake in my thoughts?

[npierson7]

You're right, however ​​​​​​the $12,400 exemption is related to earned income and not always applicable. You have to file income tax return if:

•  You received distributions from a health savings account, Archer Medical Savings Account or Medicare Advantage MSA.

• You owe taxes on health savings account, IRA or other tax-favored account.

• You had self-employment net earnings of at least $400;

• You made more than $108.28 from a church or church organization.

• If the total of your unearned income is more than $1,100

[Marcelx90]

I didn't know about that. So, my fellowship counts as unearned income?

But now the question arises whether the unearned income needs to be taxable or not?

• If so, I still wouldn't need to file Form 1040 because my fellowship (which exceeds $1,100) is exempt from tax and so, my (taxable) unearned income would be less than $1,100.
• If not, my unearned income including my fellowship would exceed $1,100 and I'll file Form 1040.

Which point is correct in my case?

I think, I will be on the safe side if I just file Form 1040 next year.

I hope this is my last message. Thank you so much. I really appreciated your help!

[Marcelx90]

Hi @npierson7 

I'm still facing some issues with reporting my fellowship using TurboTax.

I followed these guidelines (https://ttlc.intuit.com/community/taxes/discussion/how-to-report-fellowship-income-without-a-w2-form...) to add my fellowship on my Form 1040. But instead of adding the fellowship as "capital income" (line 7) or as "other income" (line 8 on Schedule 1), it just added up to "Wages, salaries..." (Line 1) although it hasn't been reported on my W-2 Form.

So, how should I report it correctly?

Also, I followed your guideline for reporting the Tax Treaty Exemption, but it showed up as a negative amount on Schedule 1, line 8 "Other reportable income" instead of Schedule 1, line 21 as you mentioned...

I think, there is a mistake...?

[npierson7]

It isn't a mistake. It is acceptable and you're getting the same result. You fellowship is being reported as ordinary income and then offset on the line 8 as a negative amount. The amounts should be the same numbers. 

[Marcelx90]

Okay, thank you.

Please, could you also refer to the first question?

Should I include the fellowship as "Wages, salaries,..." on line 1, although it hasn't been reported on my W-2 or should I rather only report the wages from my W-2 on line 1 and add the fellowship on line 7 (or somewhere else) as mentioned in the link (see previous message)?

[AmyC]

Scholarship/ fellowship income is reported on line 7 here, in with wages to create ordinary income. It all sounds good.

[Marcelx90]

Hi @AmyC 

According to https://ttlc.intuit.com/community/taxes/discussion/how-to-report-fellowship-income-without-a-w2-form..., I add the amount of my fellowship under "Miscellaneous Income" > "Other income not already reported on a Form W-2 or Form 1099" > (clicking) > "Any other Earned Income".

However, when I look at the preview, my fellowship will always be included on line 1 (along with my income of my W-2 form). It never appears on line 7!

[AmyC]

I am so sorry. Line 7 is old forms. Line 1 with wages is correct. 

@Marcelx90