When Elizabeth Casey ’18, a student from the United Kingdom, arrived on campus last fall, she attended an orientation event for international freshmen where she was first told that a portion of her financial aid would be taxed each year.
In the past, the tax on financial aid for international students has come as a surprise to many. But this year, international students will be informed of the tax before they arrive on campus.
Although all applicants to Yale, both domestic and international, benefit from the University’s need-blind and need-based financial aid policies, international students on financial aid face an additional tax if their package exceeds the price of tuition. The Internal Revenue Service classifies excess aid — often used to cover textbook costs or travel expenses — as taxable income, requiring universities to withhold 14 percent in taxes for international students with nonresident status. Casey, who receives a full financial aid package, said the tax imposes a fee of roughly $900 per semester.
Though students interviewed criticized the tax and the burden it places on the neediest students, many expressed particular discontent with the University’s previous failure to inform them before their arrival on campus.
“It’s absolutely vital that students are aware of the tax before they decide to attend so that they can plan and make provisions before they arrive in a foreign country with no support system,” Casey said.
While on-campus conversations about financial aid policy have primarily centered on the student contribution requirement, students have had similar concerns about the foreign tax over the course of the year.
For the class of 2019, however, Student Financial Services has prioritized transparency on the issue. Director of Financial Aid Caesar Storlazzi said financial aid letters sent to foreign admitted students this year will contain a special note about the requirement, its conditions and exemptions — tax treaties held between the United States and some countries, for example, exempt students from the tax altogether.
“This is a somewhat confusing area,” Storlazzi said. “And we wanted to be completely transparent about the fact that this tax withhold is required if a tax treaty does not exist between the U.S. and the student’s home country.”
Still, Storlazzi pointed to a number of ways in which students have been compensated for the tax.
The University currently increases financial aid packages for international students during their freshman year in order to help offset the tax as they transition to Yale, he said. But because these students learn more about the tax in their first year, they are expected to either budget accordingly over their final three years or to file IRS tax returns for refunds that cover at least a portion of the tax’s full cost. The SFS’s informational note contains details explaining the tax-filing process, Storlazzi said.
Noting the complexity of the tax situation for foreign students, Office of International Students and Scholars Director Ann Kuhlman told the News in February that OISS purchases a non-resident tax filing software program each year for student use as they prepare their federal returns.
Storlazzi recognized the importance of alerting students to the tax withholding issue as early as possible, though he added that it is not unique to Yale — international students are subjected to the tax regardless of which U.S. institution they choose to attend. Along these lines, SFS intends to email students throughout the spring and summer to remind them of the tax process, Storlazzi said.
Amen Jalal ’17, a student from Pakistan, said she was completely unaware of the tax until this year, her sophomore year, since the University covered it during her first year at Yale. It is crucial for SFS to be transparent with students about the tax, Jalal said, and adding information to award letters and sending out emails is a noteworthy step forward.
“It’s important that the tax is included in financial aid awards when you get into Yale to begin with, because [the tax] is not a nominal fee,” Jalal said. “My tax is more than my expected parent contribution, so it’s definitely a significant amount.”
Casey said she is pleased to hear that the University is informing students of the tax much earlier, but still believes SFS should work harder to help students pay the tax after their freshman year, either by covering the tax costs completely, or significantly reducing them.
“I think they should cover the tax all four years, because obviously those who are hit hardest by the financial aid tax are those receiving the most aid — the poorest students,” Casey said.
Each year, over $16 million in scholarships is given to international students by the University.