Rivier University makes various payments to students for tuition & fees and other education-related activities. In awarding and processing such payments, care must be taken to classify these payments correctly for tax purposes. This policy addresses types of payments made to both graduate and undergraduate students, including scholarships, stipends, prizes and awards, compensation for services, refunds and reimbursements. Additionally, this policy defines which type of payment is taxable income to the student and which payments the University must report to the Internal Revenue Service (IRS). Reporting and taxation of student payments are governed by the Internal Revenue Code and Treasury Regulations and enforced by the Internal Revenue Service (IRS). For example, scholarships are not taxable to the extent they do not exceed the cost of tuition and fees, or course-required expenses (fees, books, supplies, equipment) and the student is a candidate for a degree. These non-taxable amounts are called qualified education expenses. Amounts in excess of qualified education expenses are taxable to the student, such as room/board and living allowance, etc., and are called non-qualified education expenses.
Reason for Policy/Purpose
The purpose of this policy is to explain how to categorize payments made to students in support of their education related activities. For example, a stipend is paid as a living allowance, and includes payments other than those defined as non-taxable (non-qualified educational expense). In no instance is a stipend a payment involving services related to work. This document outlines procedures to be used and clarifies the income tax implications for receiving such payments.
Policy Summary Overview: Payments to Students
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Scholarship, Prizes and Awards
The Internal Revenue Service (IRS) refers to both taxable and non-taxable payments to students. There are two classifications: qualified and non-qualified.
This category includes payments to the student (those in a degree program) or credits to a student’s account used only for “qualified tuition and related expenses,” which are limited to tuition and required fees, books, supplies, or equipment. Qualified scholarships are not taxable income to the student. Qualified awards do not exceed stated tuition and fees amounts. Qualified scholarships are reported by the University on Form 1098-T. Reporting is not required on a 1042-S (Income subject to withholding. Income Code 15, Exemption Code 2 for international students).
A non-qualified scholarship is a scholarship payment used for expenses that are not qualified tuition or related expenses (e.g. amounts used to pay optional fees, room, board, travel and personal expenses). All non-qualified scholarship payments are potentially subject to income tax withholding and subject to reporting on IRS Form 1098-T or IRS Form 1042-S. The student should always maintain the documentation necessary to support information reported to the Internal Revenue Service (IRS).
Prizes and Awards
Prizes and awards are payments in recognition of charitable, scientific, educational, artistic, literary, or civic achievement, or are received as the result of entering a contest. Recipients are selected based on their actions to enter a contest, competition or proceeding. Drawing gifts or monetary payments are also classified as prizes. Prizes and awards are always taxable. If certain dollar thresholds are satisfied, the University will report the prize or award to the IRS and the student on IRS Form 1099-MISC.
This term describes a living allowance and is generally taxable. In no instance is a stipend a payment involving services as it relates to work. Stipends include payments to the student or credits to a student’s account other than those defined as non-taxable. The credit results in the issuance of a check through Accounts Payable. The funds may be considered taxable income to the recipient, but are not reported as taxable income by the University on Forms W-2, 1098T, 1042-S (reporting for Non- Resident Aliens, “NRAs” or 1099-MISC.
This term is used to describe the processing of a payment to a student resulting from a credit balance on the student account. The term is also applied to the payment to the student for Title IV proceeds (SEOG, Pell Grants, Federal Direct and Perkins loans) in excess of the amount of tuition and fees, room and board, and other authorized charges.
A student employee is a part-time employee who is duly enrolled at Rivier University, is registered for classes and whose primary purpose for being at the University is the achievement of a degree or certification. (See Internal Revenue Notice 2004-12 Section 7. Definitions for guidelines.) Rivier has both undergraduate (federal work study/college work study) and graduate student (GSEs- Graduate Student Employees) employees.
Students who incur costs for approved activities that primarily benefit the University may be entitled to reimbursement. Student reimbursements for approved expenditures incurred are not considered reportable as taxable income to the IRS.
There are many different types of payments to students who attend Rivier University. Each has its own taxation implications. In sum, the payments fall into two categories:
Non-taxable (excludable from student income):
- scholarships that are used for qualified tuition and related expenses
- student reimbursements for students purchasing a service or good for the University and
- student refunds for student account overpayments and/or excess Title IV funds
Taxable (includable in student income):
- prizes and awards
- funding provided via a stipend payment for a student to attend a student organization’s activities
- funding provided via a stipend payment for a student to go on a summer or other internship
- funding provided via a stipend payment for room, board and personal expenses
- student workers (federal work study, student casual workers including GSEs)
Degree Candidates: Qualified/Non-Taxable Scholarships
Scholarship reporting and taxation are governed by the Internal Revenue Code and Treasury Regulations
and enforced by the Internal Revenue Service (IRS). IRS regulations indicate that amounts paid to an individual are scholarship or grant if: “the primary purpose of the studies is to further the education and training of the recipient in his individual capacity,” and the payments did not represent compensation for services. (IRS Treasury Regulation 1.117-4). There is no obligation required of the student to receive the grant, other than to remain enrolled in a degree program and maintain qualifying requirements of the award. A “qualified scholarship” is the amount of a scholarship that can be excluded from the recipient’s income and is limited to the amount used for tuition and fees, books, supplies, and equipment required for courses. These items must be required of all students in a course of instruction for the scholarship to be tax-free (Prop. Reg. 1.117-6(c)(2)).
How to Process Scholarships
All scholarships and educational assistance grants must be awarded and processed through the school’s Student Financial Services Office using PowerFAIDS. Students should be registered for the term that the funds are being provided, as these payments cannot be applied to a term for which the student is not enrolled in at least one course. These payments are disbursed through the student’s University account and are considered a resource when determining a student’s financial aid eligibility. CAMS transdocs document qualified scholarships and educational assistance grants which will be reported by the University to the Internal Revenue Service (IRS) and to the student on IRS Form 1098-T, Tuition Statement.
Degree Candidates: Non-Qualified/Taxable Scholarships and Awards
Scholarships received to offset non-qualified educational expenses are taxable to the student. However, for students who are U.S. citizens or resident aliens, there is no tax withholding or Form 1099 reporting required by the University. For scholarship payment given to nonresident alien students, there is tax withholding and reporting on Form 1042-S to the IRS.
Non-Qualified Scholarship Payments to Nonresident Aliens (NRAs)
Rivier University does not provide “Non-qualified” scholarships to NRAs.
Non-Degree Candidates: Non-Qualified/Taxable Scholarships
Rivier University does not provide non-degree candidate scholarships.
Prizes & Awards
Prizes and awards are amounts received primarily in recognition of religious, charitable, scientific, educational, artistic, literary, civic achievement, or as the result of entering a contest. All prizes and awards (with the exception of qualified scholarships) are includible in gross income (Code Sec. 74 (a); Reg. § 1.74-1(a)) unless all of the following conditions are met:
a. The recipient was selected without any action on his or her part to enter the contest.
b. The recipient is not required to render substantial future services as a condition to receive the prize or award.
c. The prize or award is transferred by the payer to a government unit or tax-exempt charitable organization as designated by the recipient.
All three of the above conditions must be met in order to exempt the prize from taxation.
For U.S. and resident alien students, all prizes must be reported by the University to the IRS on Form 1099-MISC if total prizes to the student in the relevant year are $600 or greater. It is the responsibility of all prize recipients, regardless of the amount of the prize, to report the taxable prize received to the IRS on their personal income tax returns. For nonresident alien (NRA) students, the University is required to withhold 30% tax on the full amount of the prize. The prize amount will be reported to the IRS and to the student on Form 1042-S.
How to Process Prizes and Awards
Prizes and awards are generally processed through the University Accounts Payable Office, via a direct payment to the student and are not related to employment services. Prizes and awards are taxable. The University will report the prize or award to the IRS and the student on IRS Form 1099-MISC, Miscellaneous Income (Form 1099 reporting is only required if total awards are $600 or more in the year) or on IRS Form 1042-S, Foreign Person’s U.S. Source Income.
A stipend is paid to students as a living allowance, and includes payments to the student other than those defined as
non-taxable. In no instance is a stipend a payment involving services related to work. Although these payments are usually taxable income to the student, the University is not required to report them to the student or the IRS, nor is the University required to withhold tax on them. In 1987, the IRS ruled that an institution is not required to either withhold income tax or file any information returns with respect to taxable stipend paid to U.S. students. Therefore, even though the individual may receive taxable stipend income, the institution making the payment is not required to withhold any tax or file any reports with the IRS with respect to the taxable grant.
This “no withholding/no reporting” rule, however, is subject to two important caveats:
1. The stipend recipient must be either a U.S. citizen or a U.S. resident alien for tax purposes.
2. The payment that the institution makes to the individual must be a “stipend” and not compensation for services rendered or work.
Rivier does not pay international student stipends or summer term stipends.
How to Process Stipends
Stipends awarded to financial aid recipients must be awarded and processed through the school’s Office of Student Financial Services (SFS) using PowerFaids and CAMS. SFS records the stipend and completes a P.O./check request for Accounts Payable to cut a check.
The University’s policy is to resolve eligible credit balances in student accounts as promptly as possible—in compliance with all applicable regulations and by the end of the term in which the credit balance is created—by issuing refunds to the student. At Rivier University the student account is used for the purpose of assessing charges and applying payments against those charges. If a student’s account balance is a credit, it is the policy of the University to refund the credit to the student in a timely manner under most circumstances.
Title IV Refunds
If Title IV funds (Pell, SEOG, Federal Direct and Perkins loans) received by students exceed the amount of tuition and fees, room and board, and other authorized charges, the University will refund the excess within 14 days after the term’s first day of class, or within 14 days (if the excess occurs after the first day of class) as required by Federal Regulations. A student may request in writing that the excess be left on the student account to cover other charges using a Credit Authorization Form. If the request is not made in writing the excess will be returned to the student. Refunds paid to students are not taxable and are not reportable.
How to Process Refunds
All refunds are initiated through the Office of Student Financial Services.
Federal Work-Study Student
There are three types of on-campus student workers: federal work-study students, student casual workers and graduate student employees.
Federal work-study positions are only available to U.S. citizens who have received a work-study allocation in their
financial aid packages. The Federal Work-Study Program is designed to promote part-time employment for students
who are in need of earnings to help finance their education. Federal work-study student workers are qualified undergraduates and graduate students for full- and part-time employment.
During summer term, an individual may be a student employee if s/he has been admitted/ readmitted and is enrolled for summer term or fall semester classes. Student employees are considered at-will employees, and their employment is interim or temporary and incidental to the pursuit of a degree or certification.
Student Casual Workers (including graduate student employees)
Rivier Student Casual Workers Employees who are registered Rivier students who have a “student” status excepting those whose employment is totally independent of, and, unrelated to their Rivier student role. FICA (Social Security and Medicare) taxes do not apply to services performed by students employed by a university where the student is pursuing a course of study. Whether employees are students for this purpose requires examining the individual’s employment relationship with the University to determine if employment or education is predominant in the relationship. If the employee is enrolled and regularly attending classes at Rivier, FICA taxes will not apply to compensation.
The University Payroll Office will make student FICA determinations based on Revenue Procedure 2005-11 safe harbor guidelines; that is, those students who meet these guidelines will be treated as exempt from FICA taxes, while those student employees who do not meet these guidelines will be subject to FICA taxes on their wages. Students who are not currently registered are considered casual or temporary employees. Casual positions are open to any Rivier student, regardless of financial aid package or citizenship.
How to Process Student Payments
Both domestic and international student payments for services are processed through the University’s Payroll Office and the University’s Payroll processing system.
Students who incur costs for approved activities that primarily benefit the University may be entitled to reimbursement. Student reimbursements for approved expenditures incurred are not considered reportable as taxable income to the IRS. All University policies and procedures apply to these reimbursements, including the requirement that reimbursement requests be received by Accounts Payables.
How to Process Reimbursements
Submit payment requests to University’s Accounts Payable Office. A description of the reimbursement and the business purpose for the University should be provided.