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Tax Alert: Action Needed if Funding Changes

Created: December 10, 2014

Each quarter, a number of students are subject to over-withholding due to changes in funding from scholarship payments to assistantship (GA, RA, TA) payments. 

Scholarship/fellowship payments for U.S. citizens, Permanent Residents, and U.S. tax residents are taxable, but not subject to tax withholding unless a student specifically requests taxes to be withheld via federal and state W-4 forms.   The payments may be considered taxable income and must be reported when they file their U.S. federal and state tax returns.  IRS publication 970 can assist in determining which portion of these payments is considered taxable income.  Students that would like Payroll to withhold taxes, complete the Federal W-4 Employee’s Withholding Allowance Certificate and IL W-4 Employee’s Illinois Withholding Allowance Certificate forms by entering a specific dollar amount on line 6 for the federal W-4 and line 3 on the Illinois W-4. 

Once they add the additional tax withholding, it is very important to know this extra withholding will continue on each payment they receive from the University until you submit new federal and state W-4s removing the additional amount.  That means when you later switch to an assistantship payment (GA, RA, TA) or any other type of employment income (prize, additional pay, etc.) for which regular federal and state taxes are withheld, you will then be taxed on the payment for BOTH the normal tax withholding and the additional amount you entered on the W-4s.  To avoid this, your department should alert you to any such funding changes.  If you will be changing from scholarship/fellowship to another type of payment (or back), you must submit updated federal and Illinois W-4 forms to the Payroll Office by the monthly payroll deadlines for the tax change to be effective for that month. 

If you have any questions about tax withholding, please contact the Payroll Office payroll@northwestern.edu or 1-7362