The term “scholarship” is used interchangeably with the term “fellowship” by the Internal Revenue Service (IRS) to refer to both taxable and non-taxable payments to students. There are three classifications:

• Qualified
• Non-Qualified
• Trainee Fellowships

Scholarship and fellowship reporting and taxation are governed by the Internal Revenue Code and Treasury Regulations and enforced by the Internal Revenue Service (IRS).

Qualified Scholarship/Fellowship

Non-Qualified Scholarship/Fellowship

Trainee Fellowship

Definition: Cash or noncash items given for meritorious performance, accomplishment, achievement, or activity that does not require the performance of a service. Prizes can also be given in conjunction with a contest, competition, or drawing where an individual voluntarily participates and is open to any individual who meets the qualifications of the event.

Example: Student enters a competition sponsored by a department at the University and his/her team wins 1st place.

Financial reporting/taxation: Prizes and awards distributed as cash and cash equivalents are taxable and reportable regardless of value. They must be reported on the IRS form 1099-MISC. Prizes and awards other than cash or cash equivalents valued less than $50.00 are considered De Minimis fringe benefits by the IRS and do not need to be reported as income for tax purposes.

Processing method: Prize and awards are processed via Buyway using the “Payment to Individual” tile.

Definition: Payments made for teaching, research and/or other activities performed for the benefit of the University, including activities for the University that may be associated with the student’s course of study and educational experience.

More specifically, with respect to research activities, an issue often arises whether the research activities constitute "services" or "independent research." Factors that the IRS and the courts have considered in making this determination include:

• The extent of faculty supervision of the student's work, including planned time schedules and required progress reports.
• Whether the student is required to work a specified number of hours a week on the research project.
• The student's ability to direct the course and direction of the research activities.
• Whether the research services are directly related to the fulfillment of a contractual commitment by the university.

Example: Student worker receives a paycheck from the university because he/she works on campus.

Financial reporting/taxation: Payments received in connection with the performance of service by a student are taxable income and are subject to federal, state and FICA tax withholding and are reported on the IRS form W-2

Processing method: Compensation for work/services is processed via the HR/ Payroll system.

Definition: Payments issued to students who incur costs for approved activities that primarily benefit the University. As with University employees, this situation arises when a student purchases a service or good while acting as an “agent” of the University and while conducting University business.

Examples:

• Student A is approved to travel to Washington, DC to represent Miami in a scholastic competition.
• Student B is approved to travel to a conference held in Memphis, TN to present a paper on behalf of the Department of Social Work.

Financial reporting/taxation:  Reimbursement of University business expenses is not reportable as taxable income and is not subject to tax withholding.

Processing method: Reimbursement are processed via Buyway using the “Payment to Individual” tile.

Additional considerations:

If a student is awarded funds to conduct research or attend a conference where they will present research related to their field of study but not on behalf of Miami, the payment is not considered to be reimbursement for Miami University related business expense.

If the payment relates to the pursuit of studies or research and furthers the education and training of a student, the payment may be considered a taxable award or non-qualified scholarship.

Definition: a payment that is made to an individual to support a training/learning experience, and is frequently in the form of a "living allowance." Living allowance stipends never involve services as it relates to work.

All stipend requests must include documentation describing the proposed stipend payment, the training program for which the stipend is paid, and sufficient information to establish that the stipend payment is a non-compensatory payment to defray living expenses during the period of a Miami University program.

Example: A student is involved in a summer research project and is awarded a stipend in order to help cover living expenses.

Financial reporting/taxation: In no instance can a stipend be a payment involving services as it relates to work.  Stipends are not considered wages or non-employee compensation when paid to support a training/learning experience.

Generally, for US citizens and resident aliens, no Federal Withholding tax will be deducted by the University from stipend payments, although stipends may be taxable to the recipient.  Payments relating to services provided by students are considered wages and are always taxable and require that the University report them to the IRS.

 In cases when payment is funded by a grant, all grant terms and conditions must be observed and full grant documentation must be attached to the payment request. 

Payments without sufficient and reliable documentation will not be processed.  It is critical that supporting documentation includes the Who, What, When, Where, and Why the payment is being processed.  

Processing method: Stipends can be processed via Buyway using the “Payment to Students” tile or via the Payroll system depending on the source of payment and regulation requirements.

Definition: Any payment made to a student who has a “Non-Resident” tax filing status. If a student is not a US citizen, they are considered a Non-Resident Alien for tax purposes unless they are a green card holder or they passed the substantial presence test performed by Payroll Services. Please note that this is based on how many years the individual has been present in the US, not their immigration status.In order for Payroll Services to perform the substantial presence test, the student will be required to provide all relevant documentation including the student’s visa, passport, I-20 or DS-2019, I-94 with travel history included, and a completed Foreign National Information form. 

Example: A non-resident student is awarded prize money for being on the winning team of a case competition.

Financial reporting/taxation:  All payments are also subject to backup withholding unless the student is a resident of a country that has a tax treaty agreement with the United States. Payroll Services is responsible for reviewing and making tax determinations regarding each payment made to foreign nationals. Depending on the nature of the payment, payments to Non-Resident students may be reportable on Form 1042-S.

Processing method:  Depending on the nature of the transaction, payments to foreign national students are to be processed using either the “Payment to Individual” tile or the “Scholarships/Fellowships” tile in Buyway. In either case, it is vital to specify the citizenship status of the student on the form being submitted to ensure that the payment is routed to the appropriate parties for review.

If you are uncertain about a student’s citizenship status, please contact Payroll Services so they can make that determination by performing a substantial presence test. The student will be required to provide all relevant documentation including the student’s visa, passport, I-20 or DS-2019, I-94 with travel history included, and a completed Foreign National Information form.

Please refer to IRS PUB 970 for further tax guidance.