Office of the Foundation Relations

Business Office information regarding Student Payroll Services

 

Student Stipend                                04-29-09

  • 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.