Awards, Scholarships and Stipends
All award payments to students must be processed on the Award Request form. The student must check the appropriate box regarding their citizenship status. All Award Request forms must be approved by the Scholarship Coordinator and the Nonresident Alien Tax Specialist. There are two types of award payments - compensatory and noncompensatory
- Compensatory award - "For an award to be considered wages subject to employment taxes, there must be an employer-employee relationship existing between the one making the award and the recipient of the award. If no such relationship exists, the award will not constitute wages." (Commerce Clearing House, Payroll Management Guide, Paragraph 623, Awards and Prizes). If services are required to receive the award, the individual must be an employee and paid through the payroll system. An example of this type of an award would be if a student spoke at a conference.
This income is reported on a Form W-2 and is subject to 25% withholding tax for U.S. citizens, Permanent Residents, Green Card Holders and Resident Aliens. Nonresident Aliens are subject to 30% withholding tax. This is reported on a Form 1042S. The only way to be exempt from the tax is if there is a treaty between the foreign national's country of tax residency and the U.S. and the recipient is qualified to take advantage of the treaty.
- Non Compensatory Award - "Awards to non-employees by an employer are not considered income if the following conditions are met:
- The prize or award was made primarily in recognition of the recipient's past achievements in religious, charitable, scientific, educational, artistic, literary, or civic fields.
- The recipient was selected without any action on his part to enter a contest or proceedings.
- The recipient is not required to render substantial future services as a condition to receiving the prize or award.
- The prize or award is transferred by the payor to a governmental unit or tax-exempt charitable, educational, religious, etc. organization designated by the recipient.
- If the individual receiving the award is an employee in some capacity for the university, the award is paid through the payroll system and will be taxed and reported as if it were a compensatory award." (Commerce Clearing House, Payroll Management Guide, Paragraph 623, Awards and Prizes). An example of this would be if the non-employed student wrote a paper, and unexpectedly received an award for writing the best paper.
If the recipient is not an employee the total income for the year is less than $600, the income is not subjected to withholding, but the recipient must self report the income. If the recipient's total income for the year is more than $600, the recipient will not be subject to withholding, but the income will be reported on a Form 1099.
Nonresident Aliens are subject to 30% withholding tax and the income is reported on a Form 1042S. The only exemption for a foreign national is if there is a treaty between the foreign national's country of tax residency and the U.S. and the recipient is qualified to take advantage of the treaty.
All scholarship payments must be processed on the Scholarship/Fellowship Request Form and submitted to the Scholarship Office at MS 0076 for processing, which may take up to three weeks from the date of submission.
- Compensatory Scholarship is income for services. For example: researcher, teaching assistant or graduate assistant. The individual must be an employee and the payments paid through the payroll system. The income is reported on a Form W-2 and is taxed at the graduated rate.
- Noncompensatory Scholarship is income paid to or on behalf of an individual for the purpose of aiding study, training, or research, and does not represent compensation for services. The individual may not be required to work in a lab or other place to retain the scholarship. It is specifically intended to defray the expenses of study, training, or research. For example, the recipient is a candidate for a degree who must maintain a certain academic standing. There are two types of noncompensatory scholarships - qualified and nonqualified.
- Qualified scholarship - This income is to pay for tuition, fees, and books, supplies and equipment required for courses. It is usually applied directly to the student's account. Even though the athletic book stipend is not applied to the student's account, the income is specifically for books, so it would fit into this category. This income is not subject to tax withholding and it is not reportable income.
- Nonqualified scholarship - This is income the student receives that is above the cost of required tuition, fees, books, supplies and equipment. For U.S. citizens, Permanent Residents (Green Card Holders), and Resident Aliens for tax purposes, this income is self reported. The student will not receive a Form 1099 and is not taxed withhold up front.
Nonresident Aliens are subject to withholding at 14%. This is reported on a Form 1042S. The only way to be exempt from the tax is if there is a treaty between the foreign national's tax residency country and the U.S. and the recipient is qualified to take advantage of the treaty. Athletic Stipends for room and board would fit into this category.
Stipends are payments to employees as a lump sum payment or fixed amount over the contract period for compensation. This type of payment is reported on the W-2 and is taxed at the graduated rate.
Stipend payments are processed only through the personnel payroll system. An example of a stipend payment would be a payment to a department chair for administrative duties and payments to ASUN government officers.