Student Payments and Taxability

Payment Types and Definitions

Florida Atlantic University makes various payments to students for tuition and fees, teaching, research, and other education-related activities. In awarding and processing such payments, care must be taken to classify these payments correctly to avoid over-awarding students financial aid, causing undo financial surprises for students and tax reporting purposes. This document explains the types of payments made to graduate and undergraduate students, including scholarships, fellowships, prizes, compensation for services related to work and reimbursements and which payments require tax reporting and withholding.

Stipend: This term describes a living allowance and is generally taxable. In no instance is a stipend a payment involving services as it relates to work. Stipends include payments to the student or credits to a student’s account other than those defined as non-taxable fellowships. The payment is to provide financial assistance while the student is gaining experience and knowledge in a specific field.

  • Stipends can be awarded in the form of a cash prize; awarded based on performance in a judged competition.
  • Examples can include travel to conferences, research, workshops, participation in university events, and prizes, study abroad, graduate, undergraduate, internship, and research positions, or other contribution to support educational or training expenses, including tuition, and living costs.
  • The funds may be considered taxable income to the recipient who is a U.S. resident or citizen for tax purposes, but are not reported as taxable income by the University on Forms W-2 or 1099-MISC.
  • The funds may also be considered taxable income to the recipient who is a Non-resident Alien (NRA) for tax purposes and are reported as taxable income by the University on Form 1042-S (reporting for Non-Resident Aliens, “NRA’s”.

The most common examples of nonqualified scholarship/fellowship are payments used to pay for room, board, travel, medical expenses, etc. The following payment types are generally not considered stipends, and that term should not be used to refer to them.

      • Expense reimbursement
      • Bonus
      • Award or prize to student

Scholarship and Fellowship: Reporting and taxation are governed by the Internal Revenue Code and Treasury Regulations and enforced by the Internal Revenue Service.  IRS regulations indicate that amounts paid to an individual are scholarship or fellowship grants if: “the primary purpose of the studies or research is to further the education and training of the recipient in his individual capacity,” and the payments did not represent compensation for services. Scholarships are to support educational pursuits or research.

All qualified scholarships and educational assistance grants will be reported by the University to the Internal Revenue Service (IRS) and to the student on IRS Form 1098-T, Tuition Statement.

Scholarships are offered to students to help cover the cost of their education based on financial need or academic achievement.  A scholarship applies to degree seeking students and is used to cover qualified tuition and related expenses, which include tuition, room, meal, and books/supplies or equipment fees.

  • Scholarships have set criteria for recipient selection.
    • Colleges and Departments select recipients based on the criteria of the scholarship agreement (major, grade level, grade point average, financial need, athletic abilities, or a combination of other restrictive criteria).
    • Scholarships are offered annually and require a submitted application.

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

  1. Qualified
  2. Non-Qualified
  3. Trainee

Qualified Scholarship/Fellowship: This category includes payments to the student (those in a degree program) or credits to a student’s account used only for “qualified tuition and related expenses,” which are limited to tuition and required fees.

  • Qualified fellowships are not taxable income to the student.
  • Qualified awards do not exceed stated tuition and fee amounts.
  • Qualified scholarships and fellowships are reported by the University on Form 1098-T.
  • Reporting is not required on a 1042-S. Income Code 15, Exemption Code 2 (1042-S) for international students.

Non-Qualified Scholarship/Fellowship: A non-qualified scholarship or fellowship is a scholarship/fellowship 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).

  • 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).

Prizes & Awards: Prizes and awards are payments in recognition of charitable, scientific, educational, artistic, literary, or civic achievement, or are received as the result of entering a contest.

  • Recipients are selected based on their actions to enter a contest, competition or proceeding.
  • Drawing gifts or monetary payments are also classified as prizes. Prizes and awards are always taxable.
  • If certain dollar thresholds are satisfied, the University will report the prize or award to the IRS and the student on IRS Form 1099-MISC, Miscellaneous Income (PDF from IRS.Gov), or on IRS Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding (PDF from IRS.Gov)

Trainee Fellowship: 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.

  • The funds may be considered taxable income to the recipient, but are not reported as taxable income by the University on Forms W-2 or 1099-MISC. However, depending on the circumstances of the payment, payment may be reported on IRS Form 1098-T, Tuition Statement or on IRS Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.
  • If the trainee fellowship payments to the student or credits to a student’s account are used only for tuition and required fees, they are reportable to the Internal Revenue Service (IRS) by the University via Form 1098-T.
  • Trainee fellowships may constitute taxable income to the fellow/trainee to the extent there are no offsetting qualified educational expenses. (Tuition and required fees are qualified educational expenses; room, board, living expenses and travel are not qualified educational expenses.)

 

Student Refund:  This term is used to describe the processing of a payment to a student resulting from a credit balance on the student account. The term is also applied to the payment to the student for Title IV proceeds (SEOG, Pell Grants, Federal Direct) more than the amount of tuition and fees, room and board, and other authorized charges.

Compensation for Services Related to Work: This category is defined as 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. Payments received in connection with the performance of service by a student are taxable income, and may be subject to federal, state and FICA tax withholding.

Definition of Student Workers: A student employee is a part-time employee who is duly enrolled at Florida Atlantic University, is registered for classes and whose primary purpose for being at the University is the achievement of a degree or certification.

Student Reimbursements: Students who incur costs for approved activities that primarily benefit the University may be entitled to reimbursement. Student reimbursements for approved expenditures incurred are not considered reportable as taxable income to the IRS.

Types of Payments to Students and Taxation Implications: There are many different types of payments to students who attend Florida Atlantic University. Each has its own taxation implications and fall into two categories:

  1. Non-taxable (Excludable from Student Income)

Scholarships/fellowships that are used for qualified tuition and related expenses.

  • Student reimbursements for students purchasing a service or good while acting as an “agent” of the University.
  • Charitable activity student refunds for student account overpayments and/or excess Title IV funds.
  1. Taxable (Includable in Student Income)
  • Prizes and awards: funding provided via a stipend payment for a student to attend a conference or conduct research, such as thesis research (unless such expenses further University purposes, such as a student organization’s activities).
  • Funding provided via a stipend payment for a student to go on a summer or other internship, or to go on a job search/interview.
  • Funding provided via a stipend payment for room, board, and personal expenses.
  • Compensation for services related to work.

 

To view the complete Publication 970 (2023) tax Benefits for Education, please visit Publication 970 (2023), Tax Benefits for Education | Internal Revenue Service (irs.gov).

 

Last updated 4/2024.