Fulbright grants received by a U.S. citizen from an agency which dispenses and administers Fulbright grants (domestic or foreign) fall into two types of income for tax purposes. If you are a U.S. citizen recipient of a Fulbright grant, you must determine which category of income your grant falls into in order to know how the grant is taxed for U.S. Federal Income tax purposes.
Fulbright grants may be either scholarship/fellowship income or compensation for personal services, which is usually considered wages.
For tax purposes, a scholarship/fellowship may be defined as an amount given to an individual which has the following characteristics:
- It is paid to aid the individual's pursuit of study, training, or research;
- It does not constitute compensation for personal services - past, present, or future; and
- It is paid more for the benefit of the grantee than the grantor.
For tax purposes, compensation for personal services represents an amount paid to an individual in exchange for his performance of personal services - past, present, or future. Compensation for personal services usually takes the form of either wages or self-employment income.
In 1961 the Internal Revenue Service issued Revenue Ruling 61-65 dealing with Fulbright grants. Portions of that Revenue Ruling read as follows:
"It is held that the amounts received for study and research abroad, under the Fulbright Act and the United States Information and Educational Act of 1948, by United States citizens are scholarship or fellowship grants within the meaning of section 117 of the Code. . . "
"On the other hand, amounts paid to United States citizens for lecturing or teaching abroad are not paid to enable the recipients to pursue studies or research but are compensation for services rendered and are includible in their gross incomes under section 61 of the Code."
If the proceeds of a Fulbright grant are paid to enable the grantee to study, train, or conduct research abroad mostly for his/her own benefit, then the grant is scholarship/fellowship income. If the proceeds of the Fulbright grant are paid as compensation for lecturing or teaching abroad, then the grant is compensation for personal services and is usually considered to be wages.
When to Report a Fulbright Grant
Taxable Fulbright grant payments are reportable in the year in which they are received. For example, a Fulbright grantee with a ten-month grant who begins the grant in September 2019 and will receive two grant checks in tax year 2019 and two grant checks in tax year 2020. For tax year 2019, figure the income tax liability only on the amount of taxable grant funds received in calendar year 2019. For tax year 2020, figure the income tax liability only on the amount of taxable grant funds received in calendar year 2020.
A Fulbright grantee, who begins a grant in January 2020, will usually receive the first check in December 2019 and thereby incurs an income tax liability for 2019.
How to Report a Fulbright Grant as a Scholarship/Fellowship
If your Fulbright grant is scholarship/fellowship income as described above, then you should report the income as wages on the appropriate line of Form 1040 and add the note “SCH” in the margin next to the line. If you are reporting wage income from another source on the same line, simply add the amount of the Fulbright scholarship/fellowship income to the wage income also shown on that line.
If you were a candidate for a degree, and your study, training, or research performed under the Fulbright grant was a part of your pursuit of a degree, then you may deduct from your taxable Fulbright grant income any amounts you spent on (1) tuition, (2) fees, (3) books, (4) supplies, and (5) equipment required for your courses. You should attach a schedule to your Form 1040 itemizing your gross Fulbright grant income, less these 5 deductions, in order to arrive at a net taxable amount of the grant. This net taxable amount should be reported on the line for wages on Form 1040.
If you were not a candidate for a degree, then the entire gross amount of the Fulbright grant is taxable and reportable as wages on the appropriate line of Form 1040 as a scholarship or fellowship. If during the tax year, you paid foreign income taxes on your Fulbright grant, then you may be eligible to claim a Foreign Tax Credit on Form 1040. You should use Form 1116, Foreign Tax Credit, to compute the amount of foreign tax credit. See Publication 514, Foreign Tax Credit for Individuals, for more information on the foreign tax credit.
See Publication 970, Tax Benefits for Education, Chapter 1, for an explanation of the taxation of scholarships and fellowships.
How to Report a Fulbright Grant as Wages
If your Fulbright grant is wages, because you performed lecturing or teaching services as a condition for receiving the Fulbright grant, then you should report the entire gross amount of the grant as wages on the appropriate line of Form 1040 – even if you did not receive a Form W-2.
Deductions, Exclusions and Credits
When a Fulbright grant is considered as wages, then several possibilities may be available to reduce your U.S. federal income tax on these wages. For example:
- If you are outside the United States, your tax home is in a foreign country, and you meet certain other conditions, you may be able to take the Foreign Earned Income Exclusion. The Foreign Earned Income Exclusion is explained in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad.
- If you pay foreign income tax on the Fulbright Grant income you earn in a foreign country, then you may be able to claim a Foreign Tax Credit . See Publication 514, Foreign Tax Credit for Individuals for more information.
Estimated Tax Payments
Since most Fulbright grants paid overseas are not subject to withholding of U.S. federal income tax, Fulbright grant recipients may need to make estimated tax payments on the taxable portion of their grants. See Form 1040-ES, Estimated Tax for Individuals, for the requirements for making estimated tax payments.
Grant Paid in Foreign Currency
All income must be reported in U.S. dollars. In most cases, the tax must also be paid in U.S. dollars. If, however, at least 70% of your Fulbright grant has been paid in nonconvertible foreign currency (blocked income), you can use the currency of the host country to pay the part of the U.S. tax that is based on the blocked income.
If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U.S. dollars. You must translate into dollars all items of income, expense, etc. (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. For information on currency conversions, please refer to Foreign Currency and Currency Exchange Rates.
If, because of restrictions in a foreign country, your income is not readily convertible into U.S. dollars or into other money or property that is readily convertible into U.S. dollars, your income is “blocked” or “deferrable” income. See Chapter 1 in Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad, for more information on reporting and paying tax on Fulbright Grants when there is blocked income.