POLICY ON PAYMENTS TO STUDENTS

Definitions, Procedures, Reporting Requirements, and Individual Taxability

The purpose of the Policy on Payments to Students is to explain how to categorize payments made to students in support of their education-related activities.

The Policy on Payments to Students addresses payments made to Wesleyan undergraduate and graduate students for scholarships, fellowships, stipends, internships, compensation for services, prizes and awards, refunds, reimbursements, and other miscellaneous payments.  Additionally, this policy defines which types of payments must be reported to the Internal Revenue Service (IRS) by the University and what the taxability of the payment is to the student.

Wesleyan University makes payments to students for tuition and fees, research, and other education-related activities.  In awarding and processing such payments, care must be taken to classify payments correctly for tax purposes.  Each payment is categorized by the substance of the particular payment. 

Reporting and taxation of student payments are governed by the Internal Revenue Code (the "Code") and Treasury Regulations are enforced by the IRS.  Section 117 of the Code provides rules for determining whether a stipend amount is a compensatory or non-compensatory grant.  Section 74 of the Code provides rules for determining whether a stopend amound is a prize or award.  IRS Publication 970, Tax Benefits for Education, explains the tax rules for determining 1) when a payment is a scholarship or fellowship payment, 2) the various types of payments typically treated as non-compensatory grants, and 3) when a non-compensatory grant can be excluded from income. 

 

 

 

fdsatudent, full or part-time who either:

  • attends a primary or secondary school, or is pursuing a degree at a college or university.

    OR

  • attends an educational institution that is authorized or accredited to provide a program that is acceptable for full credit toward a bachelors or higher degree, or to provide a program of training to prepare a student for gainful employment in a recognized occupation.

 

COMPENSATION - Payment for work performed or services rendered.  Includes any portion of a scholarship/stipend/grant/fellowship/internship, as well as tuition reduction, that represents payment for past, present or future teaching, research or other services.  This applies even if all candidates for a degree are required to perform these services to receive the degree. 

  • US Citizen/Resident Alien
    • Submit payment to Payroll
    • Compensation is taxable to the student and reported on a W-2.
  • Non US Citizen/Nonresident Alien
    • Submit payment to Payroll
    • Compensation is taxable to the student and reported on a W-2, with treaty earnings reported on a 1042-S.

 

STIPEND/GRANT/FELLOWSHIP/INTERNSHIP (SERVICES REQUIRED) - An amount paid for the benefit of a student at an educational institution to aid in the pursuit of study or research.  A student may be pursuing either an undergraduate or graduate degree.  There may be instances when a scholarship may contain payment for services and for non-compensation, and/or the intent of the payment is not defined or unclear.  Contact the Finance Office to discuss an individual payment and its taxability and reporting requirements.  

  • US Citizen/Resident Alien
    • Submit payment to Payroll
    • Payment is taxable to the student and reported on a W-2.
  • Non US Citizen/Nonresident Alien
    • Submit payment to Payroll
    • Payment is taxable to the student and reported on a W-2, with treaty earnings reported on a 1042-S. 

 

STIPEND/GRANT/FELLOWSHIP/INTERNSHIP (NO SERVICES REQUIRED) - An amount paid for the benefit of a student at an educational institution to aid in the pursuit of study or research.  The student may be pursuing either an undergraduate or graduate degree.  There may be instances when a scholarship may contain payment for services and for non-compensation, and/or the intent of the payment is not defined or unclear.  Contact the Finance office to discuss an individual payment and its taxability and reporting requirements.  The purpose of a non-service stipend is to aid in travel and out- of-pocket expenses, without requiring the submission of receipts. 

  • US Citizen/Resident Alien
    • Submit payment to Accounts Payable (http://financemonthly.blogs.wesleyan.edu). 
    • A non service stipend is taxable to the student but not reported by Wesleyan.  According to IRS notice 87-31.  Neither the grantor nor the educational institution is required under section 6041 to file a 1099-MISC to the IRS.  It is the responsibility of the student, the recipient, to report taxable non qualified payments to the IRS.  The student may seek taxability requirements in IRS Publication 970. 
  • Non US Citizen/Nonresident Alien
    • Submit payment to the International Tax Specialist.  Each payment will be reviewed and submitted to Accounts Payable.
    • A non service stipend is taxable to the student at a 14% rate and reported on a 1042-S.

 

PRIZES/AWARDS - An amount awarded to a student for academic excellence, achievement or special recognition.  A prize/award is not considered compensation for services.

  • US Citizen/Resident Alien 
    • Submit payment to Accounts Payable.
    • Prizes/awards are taxable to the student and reported on a 1099-MISC.
  • Non US Citizen/Nonresident Alien 
    • Submit payment to International Tax Specialist.  
    • Each payment will be reviewed and submitted to Accounts Payable.Prizes/awards are taxable at a 30% rate and reported on a 1042-S.

 

TRAVEL REIMBURSEMENT -  An amount paid to a student to make the individual whole for an out-of-pocket travel expense incurred.  Travel reimbursement requests must be supported by original documentation, including the purpose of the travel.

  • US Citizen/Resident Alien
    • Submit payment to Accounts Payable
      • Travel reimbursements, with receipts, are not taxable to the student and not reported by Wesleyan.
  • Non US Citizen/Nonresident Alien
    • Submit payment to International Tax Specialist.  Each payment will be reviewed and submitted to Accounts Payable
    • Travel reimbursements, with receipts, are usually taxable to the student at a rate of 14% and reported on a 1042-S.

 

REIMBURSED EXPENSES - An amount paid to a student to make the individual whole for an out-of-pocket expense incurred.  Reimbursement requests must be supported by original documentation, or receipt, including the purpose of the purchase.

  • US Citizen/Resident Alien
    • Submit payment to Accounts Payable
    • Reimbursed expenses, with receipts, are not taxable to the student and not reported by Wesleyan. 
  • Non US Citizen/Nonresident Alien
    • Submit payment to International Tax Specialist.  Each payment will be reviewed and submitted to Accounts Payable.
    • Reimbursed expenses, with receipts, are usually taxable to the student at a rate of 14% and reported on a 1042-S.   

 

NON QUALIFIED SCHOLARHSIP - An amount that is given to a student that is greater than the amount charged by the student's educational institution for tuition, required fees, books, supplies and equipment.  Cash, without receipts, disbursed to a student, is considered a non qualified scholarship.    

  • US Citizen/Resident Alien
    • Submit payment to Accounts Payable
    • A non qualified scholarship is taxable to the student but not reported by Wesleyan.  According to IRS notice 87-31.  Neither the grantor nor the educational institution is required under section 6041 to file a 1099-MISC to the IRS.  It is the responsibility of the student, the recipient, to report taxable non qualified payments to the IRS.  The student may seek taxability requirements in IRS Publication 970. 
  • Non US Citizen/Nonresident Alien Submit payment to International Tax Specialist.  
    • The Tax Specialist will review and submit to Accounts Payable.
    • A non qualified scholarship is taxable at a 14% rate and reported on a 1042-S.

 

QUALIFIED SCHOLARHSIP-  An amount that is given to a student to be used for tuition, required fees, books, supplies and equipment that are required for attendance at Wesleyan. Cash, without receipts, disbursed to a student, is not qualified scholarship.    

  • a)      US Citizen/Resident Alien
    • A qualified scholarship is applied to a student's University account.
    • A qualified scholarship is not taxable.  Tuition only is reported on a 1098-T.  A 1098-T is produced only for individuals with a SSN.
  • Non US Citizen/Nonresident Alien
    • A qualified scholarship is applied to a student's University account
    • A qualified scholarship is not taxable.  Tuition only is reported on a 1098-T.  A 1098-T is produced only for individuals with a SSN.

 

OTHER PAYMENTS/STUDENT CREDITS

 ROOM AND BOARD-  An amount paid to a student to be used for room and board for attendance at Wesleyan. 

  • Non US Citizen/Nonresident Alien 
    • Room and board is applied to a student's University account.
    • Room and board is taxable and is reported at a 14% rate on a 1042-S.