I am a US citizen. I live abroad and am enrolled in a PhD program at a foreign university, for which I receive ~20kUSD/year.

I will refer to the money received from the university non-specifically as income because

  1. the university is in a non-English speaking country and its English language documents are sparse and inconsistent

  2. what type of income these payments constitute is central to my question:

Since my tax home is abroad and I pass both the bona fide residency and physical presence tests, I am eligible for Foreign Earned Income Exclusion (FEIE). Does FEIE apply to my income?

I would argue that the answer is yes. I am also clearly biased, so I would be grateful if someone with experience in law and taxes could check my arguments.

For FEIE purposes, the payments are either salary or scholarship/fellowships (no other categories discussed in [1] remotely apply). The former are clearly covered by FEIE. Hence, let us assume the worst case that the payments are scholarships, for which I found

“Scholarships and fellowships fall into earned income, unearned income, or partly into both” [1]

FEIE applies to earned income, and not to the latter. Quoting further,

“Any portion of a scholarship or fellowship grant that is paid to you for teaching, research, or other services is considered earned income.” [1]

I have transcripts showing that I receive 90% of the required PhD program credits for “Research credits”, which I spend in a laboratory working for the laboratory/research group, and 10% for mandatory seminars. However, I have no paperwork from the university that actually spells out what I get paid for.

PS: Further information that I do not think is relevant but I might be wrong: (1) For the purposes of local laws, the university is my employer. (2) The payments are taxed locally, no double taxation agreement is in place.

PPS: The internet seems mixed about this. I didn’t find any source that is remotely specific enough to serve as a reliable reference and obviously random people saying random things on the internet except stackexchange isn’t worth much, but here we go:

“A foreign student can include this type of income as foreign earned income, thus making it eligible for the Foreign Earned Income Exclusion (FEIE)”[3] –SusanY1, Intuit Tax Expert.

“Fellowships and scholarships are not considered wages or earned income, and as such, are not excludable under the Foreign Earned Income Exclusion on the U.S. tax return.” [4] –SusanY1, Intuit Tax Expert

“Scholarship income is considered earned income and it is permitted to be excluded as part of the Foreign Earned Income Exclusion (FEIE) as long as all of the other qualifications are met for the exclusion” [4] –Susan Y1, Intuit Tax Expert (“all the other qualifications” are not specified but I assume tax home and residency tests are meant here)

“The OP may qualify for the foreign earned income exclusion, which can be used to then exclude her (presumably otherwise taxable) scholarship from her US taxable income. My wife did her PhD in the UK and this is how we treated her scholarship grant, so we ended up paying no US tax on it." [5] --politicfool

[1] Publication 54 (2020), Tax Guide for U.S. Citizens and Resident Aliens Abroad (https://www.irs.gov/publications/p54)

[3] https://ttlc.intuit.com/community/college-education/discussion/re-us-citizen-doing-a-full-time-phd-program-abroad-while-working-part-time-in-the-uk/01/1651720/highlight/true

[4] https://ttlc.intuit.com/community/tax-credits-deductions/discussion/if-i-received-a-fellowship-from-the-uk-foreign-source-is-taxable-is-it-foreign-earned-income-in-the/00/1106298

[5] https://talk.uk-yankee.com/index.php?topic=81268.0

  • Just "one more opinion" from some person on the internet: I cannot see the slightest reason that it would not simply be F.E.I.E. I can't even see a vague half-reason why it would not simply be F.E.I.E. Regarding comment {4} it seems like .. a typo, I cannot see any basis for that at all.
    – Fattie
    Jan 16 '21 at 14:14
  • @Fattie right, I should have made clear that random internet opinions are worthless only if they are not from stackexchange :D In any case, I'm glad to hear you agree. If I wanted to play the devils advocate I would say that scholarships could be considered unearned income because they are given to you simply as a prize for being a genius without you having to do any labor? Like you I am very confused about that quote from [4] but looking at the entire quote makes it unlikely that it's a typo
    – Bananach
    Jan 16 '21 at 14:46
  • Also, my first quote from Publication 54 does explicitly say that it's possible that scholarships can be considered unearned income. I just wish there was a list of concrete examples somewhere
    – Bananach
    Jan 16 '21 at 14:58
  • As a fascinating point, I once asked a subtle difficult question of the taxAct.com folks, and indeed, the answer was totally wrong; only after vast investigation did they figure out the converse. So, it's "not unheard of" for one of the services to be wrong...
    – Fattie
    Jan 16 '21 at 16:37

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