This information should not be taken as official tax or legal advice. Always consultant your lawyer or tax attorney for any tax advice. This is simply to help people get started on where to look for information and personal experience.
The most common question I encountered during my year was regarding how to pay your taxes when you are in Finland. There are a lot of rumors about how the reporting works, how taxes don’t get classified, etc. In the United States, your Fulbright grant is taxable income. The IRS has a fantastic new website to discover all of the information you need on paying taxes. The link may change, but I will try to update it when my link checker informs me it breaks. You can also head over to IRS.gov and type in “Fulbright” into the search bar. It will almost always be the first link.
There are a number of questions to consider when you receive a Fulbright: Are you a degree candidate? Are you lecturing/teaching?
Students (degree and non-degree)
Most of the student grantees I encountered were working on a Fulbright as part of their degree, so the grant would be classified as a scholarship and you get to deduct a number of items from your net taxable amount (tuition, fees, books, supplies, equipment for courses). If you were fully using your grant, then your net taxable amount would be zero. You shouldn’t be using your grant as a personal salary, so go out and use it! If you aren’t a degree candidate, then your entire grant is taxable. However, because your earnings are so low for each taxable year, the total taxable amount should be pretty low (assuming you have no other taxable amounts).
In Finland, your student Fulbright grant is typically not taxed. Hence, you will most likely not be eligible for a Foreign Tax Credit (useful if you pay taxes in a foreign country). If you have a residence permit in Finland that allows you to work (typically a B permit with limited work rights), then be careful. If you take a part-time job while you are here (such as teaching at a university, school, etc.) that pays you, you need to have a Finnish Social Security number to report your taxes and be entered into the tax system. It doesn’t take long, but start the process as soon as you hear about a potential job. If you pay taxes in Finland, then you might be eligible for a Foreign Tax Credit or Foreign Earned Income Exclusion (check with your tax attorney for more details). Always check the residency requirements for eligibility for a tax credit or exclusion.
Based on the IRS page and discussions with non-student grantees, the grant amount should be reported as wages. I have never been in this category, so if you have had experience in reporting, just let me know and I will update this section. The Fulbright Center in Finland will have more details on taxes in Finland. You might also be eligible for a tax credit or earned income exclusion depending on the length of your stay.
Foreign Currency Conversion
Because your grant is paid in Euros (Finland is in the Eurozone), you will need to do a conversion from EUR to USD. This is actually really easy and you simply need to choose a conversion rate and keep it consistent for your tax reporting purposes. At the time, the US Embassy in Finland maintained a link on their website with the appropriate conversion from EUR to USD, but it is now out of date for 2013. The IRS provides a similar resource as well as the US Treasury.