Scholarship Income: Taxable or Not?

Today's tax question comes from Kevin in Bulgaria. He asks, "If I have received a government grant (Fulbright fellowship) to do research in Bulgaria, do I qualify for a moving expenses deduction. I receive a (meager) monthly stipend from the State Department however I am not technically a government employee. I realize you are probably very busy but if you could provide me with any information on this or any other relevant deductions, it would be greatly appreciated. Thank you for your time. "

What a great question!

If you are pursuing a graduate degree, then the Fulbright grant is considered scholarship income. If the grant is being paid so you can lecture or teach, then the grant is considered wages.

The IRS explains this in great detail at:
http://www.irs.gov/businesses/small/international/article/0,,id=149708,00.html

Following the IRS rules for scholarship income, you would create a detailed statement to report the taxable portion of your Fulbright grant. It might look something like this:

Fulbright grant (gross proceeds)... $10,000
Tuition (Sophia University)... -$5,000
Books for research ... -$1,000
Computers and other equipment for research ... -$1,000
= Net taxable proceeds ... $3,000

Also, if you live abroad for at least 330 days in a consecutive 12-month period, you could exclude up to $80,000 in wages as part of the foreign earned income exclusion. Thus whether your Fulbright is scholarship income (with allowable school deductions) or wages (with the allowable foreign earned income exclusion), it is most likely that you will owe zero taxes on your scholarship income.

Now, you asked specifically about the moving expense deduction. Technicaly, the moving expense deduction is available for people who moved because they changed job locations. If your Fulbright is considered wages (payment for teaching and lecturing), then yes you could take the moving expense deduction. If your Fulbright is considered scholarship income (in pursuit of a degree), then no you cannot take the moving expense deduction.

However, if the Fulbright is your only source of income, I do not anticipate you owing any federal taxes.

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