An amount you receive for incidental expenses is not a tax-free qualified scholarship. Incidental expenses are expenses for items that are not required for either enrollment or attendance at an educational institution, or in a course of instruction at the educational institution. Incidental expenses include:

Generally, you must include in income the part of any scholarship, fellowship, or tuition reduction that represents payment for past, present, or future teaching, research, or other services. This applies even if all candidates for a degree must perform the services to receive the degree.

You do not have to include in income the part of any scholarship, fellowship, or tuition reduction representing payment for teaching, research, or other services if you receive the amount under the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.

An appointment to a United States military academy is not a scholarship or fellowship. Payment you receive as a cadet or midshipman at an armed services academy is pay for personal services. Include this pay in your income in the year you receive it unless an exception, discussed above, applies.

Cash scholarship prizes won in a contest are not scholarships if you do not have to use the prizes for educational purposes. These prizes are taxable regardless of how you use the money. A scholarship prize that you can use only when enrolled as a candidate for a degree at a college is a qualified scholarship.

Report the taxable amount on line 1. If the taxable amount was not reported on Form W–2, print “SCH” and the amount to the right of the words “W–2 form(s)” on line 1.

Report the taxable amount on line 7. If the taxable amount was not reported on Form W–2, print “SCH” and the amount on the dotted line next to line 7 on Form 1040 or in the space to the left of line 7 on Form 1040A.

Amounts you receive under a grant that represent pay for your services as an independent contractor are included in determining net earnings from self-employment. If your net earnings are $400 or more, you will have to pay self-employment tax. Use Schedule SE, Self-Employment Tax, to figure this tax.

Whether you are an independent contractor or employee depends on the facts in your situation. The general rule is that you are an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.

You are not an independent contractor if you perform services that can be controlled by an employer (what will be done and how it will be done). This applies even if you are given freedom of action. What matters is that the employer has the legal right to control the details of how the services are performed. If an employer-employee relationship exists (no matter what the relationship is called), you are not an independent contractor.

For more information in determining whether you are an independent contractor or an employee, get Publication 15-A, Employer's Supplemental Tax Guide.

You can get an extension of time to file your return. Special rules apply if you were:

If you are not able to file your return by the due date, you generally can get an automatic 4-month extension of time to file. To get this automatic extension, use Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. Generally, you must request the 4-month extension by the regular due date of your return. See the Form 4868 instructions for how to file.

A tuition reduction for education below the graduate level is tax free if the reduction is provided by an educational institution to its employees for their education or the education of any person treated as an employee. It must not represent a payment for services. Under this rule, only the following are treated as employees.

If both parents have died, and if one of the parents qualified as an employee under (1) through (4) above, their child, if under age 25, can qualify to exclude a tuition reduction from income.

A dependent child of divorced parents is treated as the dependent of both parents.

Qualified tuition reductions apply to officers, owners, or highly compensated employees if benefits are available to employees on a nondiscriminatory basis. This means that the tuition reduction benefits must be available on substantially the same basis to each member of a group of employees, defined under a reasonable classification set up by the employer. It must not discriminate in favor of owners, officers, or highly compensated employees.

A tuition reduction for graduate education is tax free if the reduction is provided by an educational institution to a graduate student who performs teaching or research activities for that institution. The qualified tuition reduction must be for education furnished by that institution, and not represent payment for services.

Your tax home is the general area of your main place of business, employment, or post of duty, regardless of where you maintain your family home. Your tax home is the place where you permanently or indefinitely work. You are not considered to have a tax home in a foreign country for any period in which your abode is in the United States. Your abode can be your home, habitation, residence, domicile, or place of dwelling. If your tax home remains in the United States while you are abroad, you will not qualify for the foreign earned income or housing exclusions or the foreign housing deduction. But you may be able to deduct your away-from-home expenses (for travel, meals, and lodging). See Deducting Expenses, later.

For more information on tax home, the foreign earned income exclusion, and the foreign housing exclusion and deduction, see Publication 54.

There are two ways to report blocked income:

If you choose to defer reporting the income, you must file with your federal income tax return an information return on a separate Form 1040 labeled “Report of Deferrable Foreign Income, pursuant to Rev. Rul. 74–351.” You must declare on the information return that you will include the blocked income in your gross income when it becomes unblocked. You also must state that you give up any right to claim that any part of the blocked income was includable in income for any earlier year.

All amounts reported on the information return must be reported in the foreign currency involved. If you have blocked income from more than one foreign country, include a separate information return for each country.

Your choice to defer reporting income cannot be changed without the consent of the IRS. Use Form 3115, Application for Change in Accounting Method, to request a change.

Income becomes unblocked and reportable for tax purposes when any of the following happen.

If income taxes are imposed on you by a foreign country, you may be entitled to take either a tax credit or a tax deduction on your U.S. income tax return. Usually, it is to your advantage to claim the credit, which you subtract directly from your U.S. tax liability. Get Publication 514.

To qualify for this method of payment, you must prepare a statement that shows the following information.

The statement must be certified by the U.S. educational foundation or commission paying the grant or other person having control of grant payments to you.

You should prepare at least two copies of this statement. Attach one copy to your Form 1040 and keep the other copy for identification purposes when you make a tax deposit of nonconvertible foreign currency.

When you prepare your income tax return, you may owe tax or the entire liability may have been satisfied with your estimated tax payments. If you owe tax, figure the part due to (and payable in) the nonconvertible foreign currency by using the formula in Table 2.

You must attach all of the following to the return.

If you are liable for estimated tax (discussed later), figure the amount you can pay to IRS in nonconvertible foreign currency using the formula in Table 2.

If you must pay your host country income tax on your grant, subtract any estimated foreign tax credit that applies to your grant from the estimated tax on the blocked income.

Once you have determined the amount of the actual tax or estimated tax that you can pay in nonconvertible foreign currency, deposit that amount with the disbursing officer of the Department of State in the foreign country in which the foundation or commission paying the grant is located.

You may either deposit the full estimated tax amount before the first installment due date or make four equal payments before the installment due dates. See When to pay estimated tax, later.

Upon accepting the foreign currency, the disbursing officer will give you a receipt in duplicate. The original of this receipt (showing the amount of foreign currency deposited and its equivalent in U.S. dollars) should be attached to your Form 1040 or payment voucher from Form 1040–ES. Keep the copy for your records. Mail the return or your payment voucher to the Internal Revenue Service Center, Philadelphia, PA 19255–0215, U.S.A.

Generally, you must make estimated tax payments if you expect to owe at least $1,000 in tax after subtracting your withholding and credits, and you expect your withholding and credits to be less than the smaller of:

For estimated tax purposes, the year is divided into four payment periods. The payment due dates are April 15, June 15, September 15, and January 15. If you have income subject to estimated tax during the first payment period, you must make your first payment by the due date for the first payment period. You can pay all your estimated tax at that time, or you can pay it in four installments. If any of the due dates fall on a Saturday, Sunday, or legal holiday, the due date is the following business day.

If you do not pay enough of your estimated tax in each payment period, you may have to pay a penalty. You will not have to pay a penalty if you had no tax liability last year and you were a U.S. citizen or resident for the whole year. For this rule to apply, your prior tax year must have been a tax year of 12 months.

If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.

The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

To contact your Taxpayer Advocate:

For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS.

To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.