Do I pay federal tax on foreign scholarships while living abroad as a US citizen?

Yes, as a US citizen, you generally need to report your worldwide income to the IRS, including foreign scholarships. The US taxes citizens regardless of where they live. For scholarships, the portion used for qualified education expenses (tuition, fees, books) is usually tax-free. However, the living stipend part is typically considered taxable income. Since your EU scholarship is specifically for living expenses, that amount would generally be considered taxable. You might be able to exclude some or all of this income using the Foreign Earned Income Exclusion (FEIE) if you meet either the Physical Presence Test (physically present in foreign country for 330 days in a 12-month period) or the Bona Fide Residence Test (established residence in foreign country for entire tax year). But there's debate whether scholarships qualify as "earned income" for the FEIE - some tax professionals argue they don't since scholarships aren't compensation for services. For the prior year issue, you might want to consider filing an amended return (Form 1040-X) to report the previously omitted income. The IRS is generally more lenient when taxpayers voluntarily correct their mistakes.

I was in exactly your situation last year with a German scholarship. I spent hours trying to figure it out myself before I found this AI tax tool at https://taxr.ai that analyzes international tax situations. It scanned my scholarship documents and explained precisely how to report my foreign stipend. The tool clarified that my living stipend was technically taxable but showed me how to properly document the foreign tax credit for taxes I'd already paid in Germany. Saved me from making a costly mistake because I was about to just not report it at all!

Just wanted to follow up - I tried taxr.ai for my Japanese research grant situation and wow, it actually worked! The system identified exactly which part of the US-Japan tax treaty applied to my scholarship (Article 20) and walked me through the proper documentation needed. It even generated a statement explaining the treaty position to attach to my return. What surprised me most was how it flagged that part of my grant was for research services (taxable) versus pure scholarship (potentially exempt). Definitely worth it for anyone dealing with foreign scholarship tax questions!

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I have to apologize for my skepticism about Claimyr. After my frustration trying to reach the IRS about my Canadian fellowship, I tried it as a last resort. Got a callback from an IRS international tax specialist in about 3 hours. They confirmed that under the US-Canada tax treaty, my research fellowship is partially exempt but I still needed to report it. The agent walked me through the exact forms and specific line numbers for reporting. Honestly wish I'd known about this months ago instead of stressing over unanswered questions!

Don't forget to check if your country has a tax treaty with the US! I'm studying in Germany and found out through IRS Publication 901 that there are special provisions for students and researchers. Some scholarships are completely exempt from US taxation under these treaties!

I messed up my taxes last year with this exact situation. Had a French government scholarship and didn't report it. Got a lovely letter from the IRS six months later. Had to file an amended return AND pay interest. Don't be like me lol.

As someone who went through this exact situation with an EU scholarship in the Netherlands, I can confirm you absolutely need to report this. The €15,000 living stipend is taxable income since it's not for qualified educational expenses. However, there's good news! Since you're physically present in Spain for the full academic year, you should qualify for the Foreign Earned Income Exclusion under the Physical Presence Test. While there's some debate about whether scholarships count as "earned income," many tax professionals successfully apply FEIE to educational stipends, especially when they're tied to research or academic work. For your missed prior year, definitely file an amended return (1040X) soon. The IRS is much more forgiving when you voluntarily correct mistakes rather than waiting for them to find it. You'll likely just owe the tax plus minimal interest - no penalties for good faith errors. Also check the US-Spain tax treaty Article 22 - it has specific student provisions that might provide additional relief. Keep all your Spanish tax documents too, as the Foreign Tax Credit could be another option if FEIE doesn't work out. Don't stress too much - this is a common situation and very fixable!

I went through something very similar with a scholarship in Italy last year. The key thing that helped me was understanding that even though the scholarship money goes to your foreign bank account, as a US citizen you're still required to report it on your US tax return. What really saved me was keeping detailed records of any taxes I paid to Spain on that stipend. If Spain is taxing you on those living expenses (which they likely are), you can use the Foreign Tax Credit to offset your US tax liability on the same income. This prevents you from being double-taxed on the same money. For the previous year you missed, I'd strongly recommend filing that amended return sooner rather than later. I made the same mistake and waited too long - the IRS eventually caught it through automatic matching systems (they have agreements with many countries now for information sharing). When you file the amended return voluntarily, you typically just pay the tax owed plus minimal interest, but if they find it first, penalties can get expensive. One more tip - make sure you keep copies of your enrollment verification and any documentation showing the scholarship is specifically for living expenses vs tuition. This distinction matters a lot for tax purposes and you'll want that paperwork if the IRS ever has questions.