Payments to Students

Miami University makes various payments to students for various reasons. When paying a student, it is important to ensure the payment is classified correctly to comply with federal and state regulations, and Miami policies. When submitting a request for payment, it is very important to provide all related information in the Who, What, When, Where and Why format.

Providing a comprehensive response to the “Why” question is critical for a proper classification of the payment.

These guidelines address types of payments made to students, including scholarships, fellowships, stipends, prizes and awards, compensation for services, and reimbursements. Additionally, this document defines which type of payment is taxable income to the student and which payments the University must report to the Internal Revenue Service (IRS).

Students should consult their tax advisor regarding any tax obligations that may arise in connection with scholarships, prizes/awards, compensation, and stipends.  NOTE: Special care must be taken when submitting payments to international students. Please see the accordion option "Payments to International Students (Non-Resident for Tax Purposes)" for more details.

Scholarship/Fellowship

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

Definition: Non-service related payments to an enrolled student (those in a degree program or credits) used only for “qualified tuition and related expenses,” which are limited to tuition and required fees, books, supplies, or equipment.

Example: A degree-seeking student is awarded an educational grant to cover the cost of tuition and mandatory fees, books, equipment required by course.

Financial reporting/taxation: Qualified scholarships and fellowships are not taxable income to the student and are reported by the University on Form 1098-T. Amounts excluded from taxable income as qualified tuition and related expenses are 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 or fellowship grant to be tax-free.

Processing method: Qualified scholarships or fellowships are usually applied directly to the student’s account.

Non-Qualified Scholarship/Fellowship

Definition: A 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).

Example: A student is awarded an educational grant to cover the cost of travel expenses for participating in a study abroad program.

Financial reporting/taxation: All non-qualified scholarship/fellowship 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).

Non-qualified scholarships awarded to foreign nationals (non-resident aliens) are subject to tax withholding and reporting. The only way to be exempt from tax is if there is a treaty between the foreign national’s home country and the United States and if the individual is qualified to take advantage of the treaty.

Processing method: Non-qualified scholarships or fellowships are usually applied directly to the student’s account. In some instances, non-qualified scholarship /fellowship can be processed via Buyway using the scholarship tile. All payments will be reviewed and recorded by the Office of Financial Aid.

Trainee Fellowship

Definition: Payments in this category aid in the pursuit of an individual's study or research. No past, present, or future services are expected in return for the support.

Example: A graduate student applies for and receives a fellowship grant to aid research in their field of study.

Financial reporting/taxation: Trainee fellowships may constitute taxable income to the fellow/trainee to the extent there are no offsetting qualified educational expenses. (Tuition, books, fees, and supplies are qualified educational expenses; room, board, living expenses, and travel are not qualified educational expenses.)

Depending on the circumstances of the payment, payment may be reported on IRS Form 1098-T, or on IRS Form 1042-S.

Processing method: Fellowships are usually applied directly to the student’s account. In some instances, fellowship payments can be processed via Buyway using the scholarship tile. All payments will be reviewed and recorded by the Office of Financial Aid.

Prize/Award

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.

Compensation

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.

Reimbursement

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.

Stipends

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: 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 from stipend payments, although stipends may be taxable to the recipient. Payments relating to services are considered wages and are always taxable and require that the University report them to the IRS.

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

Payments to International Students (Non-Resident for Tax Purposes)

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.

 

Summary

Please refer to IRS PUB 970 for further tax guidance.

Payment Type Example Taxability University Reports to IRS on Form Processing
Qualified Scholarship Scholarships for tuition and required fees, books, supplies, equipment to candidates for a degree Not Taxable 1098 - T Scholarships/Fellowships tile in Buyway
Non-Qualified Scholarship Scholarships for room, board, optional fees, travel and personal expenses Taxable 1098-T domestic students, 1042-S international students & withholding subject to country tax treaty Scholarships/Fellowships tile in Buyway
Fellowship To aid in research in field of study Taxable if covering non-qualified expenses 1098-T domestic students, 1042-S international students & withholding subject to country tax treaty Scholarships/Fellowships tile in Buyway
Prize/Award Competition, drawing or contest winnings Taxable 1099MISC domestic students, 1042-S international students & withholding subject to country tax treaty Payment to Individual tile in Buyway
Compensation Paid employment on campus Taxable W-2 domestic students
1042-S international students
Payroll will process and tax will be withheld
Reimbursement University related business, not for pursuit of degree Not taxable Not reported Payment to Individual tile in Buyway
Stipend To assist with living expenses during research Taxable Not reported Payment to Individual tile in Buyway