Every semester, international students whose aid exceeds the cost of tuition see a deduction in their student accounts labeled “Stipend Tax.” This deduction, sometimes totaling more than $1,000, is the tax payment for the students’ scholarship money. International students affected by this tax said that they recognized it was beyond the University’s control, but they noted that they would have liked to have been told about the tax before it was charged to their accounts.
Director of Undergraduate Financial Aid Robin Moscato explained in an e-mail to The Daily Princetonian that the Internal Revenue Code defines scholarship awards that are used to pay tuition, books, supplies and fees required for a course of study as non-taxable, while all other expenses are deemed taxable.
“These taxable portions of scholarships may be used for room, board, travel and other costs,” she said. “Recipients are required by the IRS to report these amounts on their tax returns.”
American students see no IRS deductions on their student accounts, unlike international students who do not file tax returns.
“The IRS requires institutions who provide taxable scholarship payments to international students (students who are not U.S. citizens or permanent residents) to withhold tax at the rate of 14 percent on these payments,” Moscato added.
Being charged with the tax came as a surprise, said students who were interviewed for this article.
“It’d be nice to know about these costs before they appear in your student account,” Sekai Zengeza ’12 said. “It’s not a matter of the money. It’s more that I felt deceived.”
“The main reason this came as a shock last year was because I looked at my account and saw credit, so I took out money to pay for books and other personal expenses, including travel — which is what my grant award and the financial aid representative I spoke to said it was to be used for,” Zengeza explained. “Then I get an e-mail saying, ‘By the way, you’re going to get taxed 14 percent on the amount not paying for your tuition.’ ”
Yet Moscato indicated that students are notified “in a number of ways,” including the Undergraduate Announcement, the “Terms of Your Award” brochure attached to Princeton financial aid awards and “direct notices from the General Counsel and Financial Aid offices sent every tax year to both U.S. and international students who have taxable scholarship amounts according to our records.”
But Shasanka Pradhan ’12 also said he would have liked to have known more about this tax before he arrived at the University.
“Although it didn’t hurt me directly because the University [gave me] a loan to pay the taxes, it would have been better to know [about the taxes] beforehand,” he said. “I didn’t know when the aid award was given to me, so it was a bit of a surprise.”
He added that the University can sometimes provide a loan to help students pay the tax, noting that these loans have no interest until 90 months after students graduate.
Moscato explained that the University offers these loans to students for whom the stipend tax is a serious financial burden, adding, “These loans are interest-free if — and I stress if — repaid prior to the end of the grace period following graduation.”
If they had known more about the tax in advance, both students said that they would have been able to anticipate it and better prepare for it.
“This year, I made sure I didn’t buy any books and didn’t rely on that money,” Zengeza said. “I think that by not being aware of the amount you will get taxed, your perception of your University grant is exaggerated. For internationals, that can be misleading, because we don’t realize that a lot of extra costs will add up.”
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