I'm wondering if anyone might be willing to walk/talk me through the details of how they handle J-1 undergraduate students.
We've recently begun a J-1 program where undergraduate students attend for one semester for specific concentrations such as business or journalism.
We've only had a couple of students to this point and they were given tuition discounting and paid program assistant positions (through payroll) for their support.
One of the programs recently received outside funding to provide scholarships/grants to J-1 students for their housing and living expenses. They wanted to apply the scholarships directly to the student account and give them a 'refund' for the credit created. I stopped that one as I knew that the scholarships would be taxable.
All of this came up as the semester began and the student arrived, so I've been reading through a variety of publications (e.g. Publication 515 and some specific IRS bulletins on scholarships for aliens) and form instructions (e.g. 1042s) to try and understand how we would properly process and report everything.
We're a small institution and have not had to do any IRS tax remission other than payroll – which is handled by an outside processor. So we're a bit lost.
I noted that there is an alternate withholding procedure to report the scholarships as wages. But this still involves the 1042S and does not appear to be able to be processed through the payroll.
One thought I had was that we could apply the scholarships as the program staff suggested, and then we would gross up and report and pay out the taxes as if the scholarship applied was the net amount.
Would anyone be willing to spend a few minutes on the phone with me to help me understand how their program puts the theory of the J-1 programs and related scholarships and funding requirements into actual practice? Or perhaps someone has a manual regarding J-1 undergraduates? I've tried hunting on a few institution websites, but have yet to find enough detail to figure it out.
Any insights/direction would be most appreciated.