For individuals who receive fellowship payments through University of Iowa Payroll Services, the following rules apply:
Fellowship recipients are required to follow rules imposed by the Tax Reform Act of 1986 revised section 117 of the Internal Revenue Service (IRS) Code as it applies to scholarships and fellowships. Under current law, for degree candidates, only tuition and related expenses such as books, fees, supplies, and equipment required for courses can be excluded from income. For recipients who are not degree candidates, no exclusions are allowed.
The University of Iowa cannot help a fellowship recipient determine if their payments are taxable or not. If a recipient is unsure if their payments are taxable, they should consult a professional income tax preparer.
Recipients of a fellowship or graduate assistantship must follow federal guidelines. More information distinguishing between fellowship recipients and employment relationships can be found on the IRS website or in IRS Publication 970.
Given that payees should be appointed correctly prior to payment, the need to transfer a payee from a fellowship appointment to a graduate assistant appointment or vice versa should rarely occur, but in the rare instance that a transfer between pay types is processed, (examples include a miscommunication or data entry error during the appointment process), there should be clear justification based on service or learning experience, and the transfer may only occur within the same calendar year. Transfers between these appointment types that cross calendar years are prohibited, as this creates income tax implications for the employee.
Fellowship payments to U.S. citizens are not reported on a W-2 or any other income tax reporting document. The total amount of fellowship income that an individual received from Payroll Services can be found on the Employee Self Service website shortly after the calendar year ends. See the Personal tab under Year-End Taxes.
Fellowship payments to nonresident aliens who are in F-1 or J-1 immigration status are subject to 14 percent federal tax withholding unless they are tax-treaty covered. Although there is no Iowa state tax withholding on these payments, you may consider making Iowa estimated tax payments on the State of Iowa form IA 1040ES. These fellowship payments are reported on a 1042-S form.
Fellowship payments are not subject to Social Security or Medicare tax withholding (FICA).
Fellowship payments to U.S. citizens do not have any federal or state income tax withholding. If the fellowship recipient determines that their income is taxable, the recipient is required to make quarterly estimated income tax payments to the Internal Revenue Service and to the State of Iowa. Forms and instructions to make the payments can be found at the following links: