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Student Stipend Policy

Policy Statement on Student Stipends

04/29/09

Policy Statement on Student Stipends

• As a general rule, payments to students for stipends are taxable income to the
recipient unless specifically excluded from taxable income by the IRS. In most
cases, payments determined to be taxable income are to be paid through payroll
and reported on a W-2 at year end. The Human Resources department is
responsible for making a determination of tax treatment for all student stipends.

• Stipends paid to students for teaching, instructing or tutoring other students
will be treated as taxable, even if the stipend is used for tuition or
course-related expenses by the student. This rule applies even if the teaching,
instructing or tutoring is required of all candidates for a particular degree.
The IRS considers the Institution to be the primary beneficiary in such cases,
creating a compensatory transaction.

• Stipends paid to students for research will be considered to be for the
benefit of the Institution, and thus taxable income to the recipient, if there
is a specific project on which Southwestern requests the researcher to work.
These stipends will be processed through payroll and subject to taxation.
Freely-chosen research performed essentially for the purpose of writing a
dissertation or other paper would generally be considered for the primary
purpose of aiding the student, rather than the Institution, and thus would be
treated like an academic scholarship, rather than a taxable stipend. These
stipends are paid through accounts payable with no tax withholdings and subject
to 1099 reporting requirements.

• Stipends paid to students who perform research or other services for a
third-party institution and for which the student receives course credit are
generally considered to be for the primary purpose of aiding the student, rather
than the grantor, and thus would be treated like an academic scholarship, rather
than a taxable stipend. These stipends are paid through accounts payable with
no tax withholdings and subject to 1099 reporting requirements.

• Taxable stipends are considered wages and, according to the IRS, must be
subjected to federal withholding taxes and reported on form W-2. These payments
are subject to Social Security taxes unless the recipient is a student enrolled
and regularly attending classes at Southwestern at the time of employment.

• Research stipend recipients are normally required to submit timesheets, as
their payments normally do not meet the requirements for exempt status under the
Fair Labor Standards Act, as amended in 2004. The principle investigator or
supervisor is responsible for monitoring and approving time sheets for the students.

• Separate time and effort reports must be maintained for those grants requiring
time and effort reporting. The student stipend recipient and the grant’s
principle investigator must sign the time and effort report including student
stipends.

• Waivers of tuition, room and board costs as part of a stipend agreement with
students are normally considered compensation to the recipient and are subject
to the same treatment as the stipends noted above. Waivers of room costs as
part of a compensation agreement where the recipient is required to live on
campus at the convenience of Southwestern and as a requirement of the job
description are not subject to taxation. The Human Resources department will
determine if room fee waivers meet the requirements specified by the IRS for
exclusion from income taxation.

-Brenda Thompson