Student Payments and Reporting

Purpose

To provide guidelines for classifying payments made to students as scholarships, salaries/wages, consultant fees and reimbursements, ensuring compliance with Internal Revenue Service (IRS) reporting and withholding requirements. In addition to the proper classification of student payments, the appropriate procedures for processing these payments will be covered.

NOTE: There may be additional requirements when making payments to nonresident aliens.

Many payments to students, graduate students, non A&T enrolled students and others are commonly referred to as stipends. The term stipend does not provide adequate information for specific guidance in determining the appropriate procedures for processing these payments and for determining appropriate IRS reporting and withholding requirements. Therefore, these payments must be more specifically classified as scholarships, salaries/wages, consulting fees or reimbursements.

Definitions

Scholarships (also known as Fellowships): The IRS regulations regarding the definition of scholarships is contained in Section 117 which states:

Section 117(a) GENERAL RULE. - Gross income does not include any amount received as a qualified scholarship by an individual who is a candidate for a degree at an educational organization described in section 170(b)(1)(a)(ii).

Section 117(b) QUALIFIED SCHOLARSHIP. - For purposes of this section:

  • IN GENERAL. - The term "qualified scholarship" means any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.
  • QUALIFIED TUITION AND RELATED EXPENSES. - for the purposes of paragraph 1, the term "qualified tuition and related expenses" means:

          (A) tuition and fees required for the enrollment or attendance of a student at an educational organization described in section 170(b)(1)(A)(ii)and

          (B) fees, books, supplies, and equipment required for courses of instruction at such an educational organization.

Section 117(c) LIMITATION. - Subsections (a) and (d) shall not apply to that portion of any amount received which represents payment for teaching, research, or other services by the student required as a condition for receiving the qualified scholarship or qualified tuition reduction.

The University interprets these IRS regulations as follows:

A scholarship must possess two characteristics:

  1. The student (as opposed to the University) primarily benefits from the activity performed, and
  2. Teaching, research, or other services cannot be required as a condition to receive payment. The University classifies teaching and research in two ways:

Training related - any teaching or research associated with a training grant.

Service related - any teaching or research which is not involved in training is service oriented and Section 117(c) does apply.

If a payment is made to a student who primarily benefits from the teaching or research required for a training grant, then the payment should be treated as a scholarship. If a payment is made to a student who primarily benefits and is required to perform teaching or research services, then the payment should be treated as salaries/wages.

NOTE: Whether a payment is made directly or in the form of a reimbursement for books, supplies, room, board or travel, it should be treated as a scholarship as long as it meets this definition.

Primary Beneficiary: A student is considered to be the primary beneficiary if the emphasis of the duties performed is to provide training rather than to render services in return for payment. Several factors must be considered when determining the primary beneficiary. For example, if the desired outcome of the project is the training of the individual student, rather than useful results, then the student would be the primary beneficiary. The rate of pay is another consideration. If the department would hire another individual at a higher rate than the student to perform the same tasks and not provide training, then the student could be the primary beneficiary.

Salaries/Wages: All remuneration for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash. If salaries/wages are paid to an employee, applicable income and FICA taxes must be withheld. "Employer/employee relationship" as defined below should be used as a basis for determining whether an individual should be classified as an employee. Clarifications regarding this definition should be directed to Human Resources/Payroll for a ruling.

Consulting Fees: Payment for services made to independent contractors. An independent contractor is an individual who performs services for the University, but whose relationship with the entity is not an "employer/employee relationship" (defined below). Payments for fees made to independent contractors must be reported to the Internal Revenue Service on Form 1099 which are processed and recorded in the Banner Finance Module.

In general, if an individual is subject to the control or direction of another merely to accomplish a result, but not as to the details and means of accomplishing the result, he is an independent contractor. That is, the entity requesting the service has the right to tell an independent contractor what to do, but not how to do it.

Employer/Employee Relationship: An employer/employee relationship exists when a worker’s actions are subject to the direction and control of the University with regard to the results of the work, and the details of when, where and how the work is to be done. Some of the characteristics usually implied in an employer/employee relationship include permanency of employment, maintenance of specific work hours, compensation by the hour, week, month, or year (rather than by the "job"), the right of the employer or employee to terminate employment without incurring liability, and the furnishing of tools, equipment, materials and a place in which to work (none of these characteristics stand alone in determining the relationship). The IRS normally presumes that the worker is an employee and thus the University has the responsibility to prove otherwise.

Student (as defined for this policy only): An individual enrolled in course(s) for credit. Students will have all scholarship payments applied to their individual student account (in Banner Student System).

Non-University Student: Individuals who are participating in study or training at the University who do not have a (Banner) student account.

Postdoctoral Fellow: A person who has received a doctoral degree and is pursuing additional training in research.

Expense Reimbursement: Payment for expenses incurred on behalf of the University. While expense reimbursements are applicable for employees, consultants, and students. Students can be reimbursed either for business or school related activities (for example, text books). All school related reimbursements should be treated as scholarships and must be submitted to/approved by the Student Financial Aid Office.

Travel reimbursements can be either school related or business related, depending on the purpose of the event and the student’s participation in the event.

  • If the students provide services that primarily benefit NCA&TSU, the expenses are business related.
    Related services include submittal and/or presentation of a research paper, participation in round table discussions, or sharing knowledge or technology by other means.

Example: A student travels to attend an academic conference, and presents her research paper on behalf of the University. As her contribution to the conference is affiliated with the University, she is providing services that primarily benefit the University. Therefore, the expenses are business related.

If the students do not provide any services, or provide services that primarily benefit the students themselves, then the travel expenses are school related.

Example 1: A student travels to attend a workshop for educational purposes related to his own study. The student does not provide any service or contribute to the workshop on behalf of the University. Therefore, his travel expenses are school related.

Example 2: A student travels to attend a training event/program, and she presents and participates in the group discussion on the subject matter. As her participation is primarily for her own training, therefore primarily benefits herself, her travel expenses are school related.

If departments consider the travel expense to be business related, documentation detailing the purpose of the event and the student’s involvement of the event must be attached. If the travel expenses do not qualify as business related, the reimbursement must be treated as school related and processed via the Student Financial Aid Office.

Guide for Student Payments

Review the following to determine the type of payment and the appropriate processing procedures.

Payment Types and Payment Procedures

Scholarships/Fellowships:

  • For currently enrolled students, follow Scholarship Award process (Financial Aid Office)
  • For Non A&T Univ. Enrolled students or students who have graduated use the Purchase Requisition process.

Salaries/Wages:

  • Follow Payroll procedures.

Consulting Fee:

  • Follow Independent Contractor Services and authorization process.

Reimbursements:

  • Business related expenses, use the Check Request process. If accountable plan travel expenses use the Travel Authorization and Expense Rept. process.
  • School related expense & reimbursements (travel, books, etc.) are classified as scholarships.

Activity Classifications - Use the following to determine the payment classification of an activity.

Activity - Grade Papers
Normal Payment Class 1 - Salaries/Wages
Document - Payroll, HR

Activity – Performers
Normal Payment Class 1 - Independent Contractor
Document – Purchase Request & CSF-1

Payment to attend a conference (in addition to expenses)
 
Activity - Business Related (to non- employees)
Normal Payment Class 1 - Independent Contractor
Document - TVL-1, TVL-2

Activity - School Related
Normal Payment Class 1 – Scholarship
Document - Scholarship Award Form

Activity - Research (Grad/Undergr)
Normal Payment Class 1 - Salaries/Wages
Document - PR Auth./E-1

Activity – Teaching
Normal Payment Class 1 - Salaries/Wages
Document - PR Auth Form

Activity - Payment based on competition that is not related to the student's academic performance or qualification
Normal Payment Class 1 - Prize (2)
Document - CKRQ

Activity - Student Support Award (student is beneficiary)
Normal Payment Class 1 – Scholarship
Document - Scholarship Award Form

NOTE
(1) The activities specified as wage are normally classified as salaries/wages. However, the circumstances must be considered in each individual case to determine the appropriate class. On occasion, these activities could be paid as independent contractor services.

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