Rensselaer makes various payments to faculty, staff and students. When issuing these payments, it is necessary to ensure that these payments are classified correctly for tax purposes. This page addresses various types of payments including scholarships, fellowships, stipends, prizes and awards, compensation for services, relocation/housing/moving and travel reimbursements. This page will also identify which type of payment is taxable income to the recipient and which payments Rensselaer must report to the Internal Revenue Service (IRS). Reporting and taxation of payments are governed by the Internal Revenue Code and Treasury Regulations and enforced by the Internal Revenue Service (IRS).
Please note that this guidance is geared toward U.S. Citizens and Resident Aliens. Rules differ for Non-Resident Aliens and guidance on payments to Non-Resident Aliens can be found here.
A scholarship is an amount paid or allowed to a student at an educational institution for the purpose of study. A scholarship should not require the recipient to perform any services. If it does, then it is considered compensation for services and is subject to payroll wage reporting and withholding and will be paid through Payroll.
A qualified scholarship is a tax-free amount (excluded from income) if it meets both of these criteria:
- The recipient is a candidate for a degree at an educational institution and;
- Amounts received as scholarship are used to pay for qualified educational expenses:
- Tuition and fees required to enroll at or attend an eligible educational institution, and
- Course related expenses (including but not limited to fees, books, supplies, or equipment) that are required for the courses at the eligible educational institution. These items must be required of all students enrolled in a given course of instruction.
A non-qualified scholarship is not tax free (included in income) if:
- Amounts paid to or on behalf of an individual are used to pay for non-qualified expenses such as room and board, travel, research, optional equipment and other incidental expenses.
For additional information and more specific examples of qualified and unqualified expenses, see table 1-1 of IRS Publication 970 – Tax Benefits for Education.
A fellowship is an amount paid to an individual to aid in the pursuit of study or research in order to enhance his or her training in a specific field of interest. The terms of receiving a fellowship may or may not include a service or work requirement. If a fellowship requires an individual to perform services, the fellowship will be considered compensation for services and is subject to payroll wage reporting and withholding.
Similar to the above rules for scholarships, taxes do not have to be paid on a fellowship to the extent the funds are used for “qualified expenses”, which includes tuition, fees, books, and equipment required for classes or enrollment. However, any portion of a scholarship, fellowship or grant spent on “non-qualified” expenses, such as room and board, living allowances, meal allowances, travel, research and medical insurance, should be included the recipient’s taxable income for the year.
A scholarship or fellowship represents payment for services when the grantor requires the recipient to perform services in return for receiving the grant, or pursue studies, research, or other activities primarily for the benefit of the grantor. A scholarship or fellowship received on the condition of past, present, or future services by the recipient, or services that are subject to the direction or supervision of the grantor, also represents payment for services.
Any reimbursement to an undergraduate or graduate student which does not meet one of the criteria will be taxable scholarship income to the recipient but is not reported on IRS Form W-2 or 1099-MISC. It is considered to be self-reported income per IRS Publication 970 and it the recipient's responsibility to maintain records for these scholarship payments.
Under the Tax Cuts and Jobs Act of 2017, the personal deduction for relocation expenses and the exclusion from income of employer-paid relocation expenses are suspended from January 1, 2018 through December 31, 2025. As a result, all moving expenses incurred on or after January 1, 2018, whether reimbursed to an individual or paid to a vendor on behalf of an individual, are taxable income to the individual.
At the hiring department’s discretion, it may choose to offer a new employee a predetermined amount to cover relocation costs, rather than reimburse for expenses actually incurred. Relocation bonuses must be paid as a lump sum, through an Employment Transaction Form (ETF) facilitated with HR, and paid through payroll, so that it is subject to all applicable payroll taxes.
Moving expenses include all expenses incurred to physically move all household objects (includes pets and plants) and household members from the old home to the new home. Household members include family members who were residents of the old home that are also moving to the new home. Moving expenses paid to a third party vendor on behalf of an individual are taxable to the individual. It would be expected that moving expenses are covered via the relocation bonus paid to the employee.
House Hunting Expenses
House hunting expenses include all expenses related to visiting the Troy area, after an offer of employment has been accepted, for purposes of searching for a residence, familiarizing with the area, visiting schools, etc. House hunting expenses do not include expenses as described under Business Travel. Reimbursements for house hunting expenses are always taxable. House hunting expenses paid to a third party vendor on behalf of an individual are taxable to the individual. All employee house hunting expenses must be reported to Payroll.
Recruiting expenses include travel expenses incurred to bring job candidates to the university for interviews, travel expenses incurred by the candidate that are directly related to the interview itinerary, and travel expenses incurred by the candidate’s accompanying spouse to the extent that the activities of the spouse are directly related to the interview itinerary.
Recruiting expenses do not include:
- Personal expenses. Examples of personal expenses include sightseeing expenses, hotel accommodations for periods longer than reasonably necessary for the interview itinerary, and travel expenses of additional family members (other than the spouse).
- Expenses incurred once a candidate has accepted an offer of employment, regardless of start date. Expenses incurred after the employment offer must be classified and substantiated as house hunting expenses, moving expenses, or business expenses.
Reimbursements of recruiting expenses incurred in accordance with the guidelines above are nontaxable expenses. Note: Nontaxable recruiting trips will generally be limited to two (2) per candidate as per IRS guidelines. If the department believes that additional recruitment visits may be required, please contact the Tax Department prior to making additional arrangements as exceptions to the rule must be well-documented to be supportable under IRS examination.
Business Travel Expenses
After an offer of employment has been accepted, visits to the university by the future employee for purposes of meeting with university staff, setting up laboratory or office space, and other similar business related trips should be reimbursed under normal business travel policies. Note: If the future employee is accompanied by a family member, the portion of travel expense incurred for the family member must be treated as house hunting expenses.
The IRS does not classify travel reimbursement as a category of income. Travel reimbursements are only associated with the following categories of income:
- Compensation (either dependent or independent)
- Non-service Scholarship or Fellowship
The category of income is based on the combination of the relationship of the traveler with the payer in connection with (i) the expectation or not, of services to be rendered, and (ii) the benefit of the travel taking place.
If the person is an employee or independent contractor, the travel payment is for the benefit of the institution and the payment would fall under the rules of accountable plan.
Travel by Faculty & Staff
The Institute’s travel reimbursement policies have been developed to meet the IRS definition of an “accountable plan.” Under an accountable plan, allowances or reimbursements paid to employees for job-related expenses are excluded from wages and are not subject to withholding. An allowance or reimbursement policy (not necessarily a written plan) is considered an accountable plan if:
- There is a business connection to the expenditure.
- There is adequate accounting by the recipient within a reasonable period of time.
- Excess reimbursements or advances are returned within a reasonable period of time.
Please refer to RPI's Travel and Expense Policy for specific details around employee travel.
Travel by Students
Student travel payments are generally considered reimbursement (nontaxable, non-reportable to the IRS) if the travel:
- Directly supports a faculty member's project or research program
- Results or research will be used by the university
- Research is performed to fulfill university's obligations to outside funding entity (contract/grant obligations under the direction of a faculty member)
In keeping with above criteria, travel expenses paid from federally and state funded research grants will be considered non-taxable to the students. Private grants may also fall into the above requirements, but may require additional review of the proposal, award and/or budget documents.
Examples of a Non-Taxable Travel Grant or Scholarship
- A student travels to a conference to discuss research on the federally funded grant on which they are working with the PI.
- A student travels to a laboratory to conduct research as directly by their advisor and the research is used in a PI's grant.
Student travel payment is generally considered to be a scholarship (taxable, reportable) if:
- Reimbursement is made for activities in which the university obtains little or no benefit or the research is student led
- The project/research's primary purpose and original intent is to further the student's education or training
- Activities are performed to contribute to the development of the skills needed in the student's studies
Examples of a Taxable Travel Grant or Scholarship
- Student travels to the United Kingdom for dissertation research, which is not research the university would otherwise conduct. The student dissertation is the primary purpose of the travel. The student is the primary beneficiary.
- Student travels to a conference in Mexico as an attendee and does not present/contribute in an official capacity.
- Student travels to China for Mandarin language training which will assist in language proficiency needed for degree. This is supplemental work that the student may need to succeed, but it is not a required part of the degree.
- A PHD student presents their dissertation at a conference. The main purpose of the travel was for the student to present themselves to the academic community. The student is the primary beneficiary.
Travel reimbursements will be reviewed on a case by case basis by the Office of Tax within the Controller’s Office.
Any travel reimbursement to an undergraduate or graduate student which does not meet the criteria noted above, will be taxable scholarship income to the recipient but is not reported on IRS Form W-2 or 1099-MISC. It is considered to be self-reported income per IRS Publication 970 and it the recipient's responsibility to maintain records for these payments.
Employee Gifts, Prizes and Awards
Cash and Cash Equivalents
Cash gifts, prizes, or awards, including gift certificates and gift cards (cash equivalents), are considered supplemental wages and are always reportable as taxable compensation, regardless of the dollar amount and beginning with the first dollar. Gifts, prizes or awards of cash and cash equivalents must be processed through Payroll and are subject to federal, state and employment tax withholding. The gift, prize or award must also be included in the employee’s year-end Form W-2, Wage and Tax Statement.
An item of tangible personal property may be presented to an employee in recognition of their noteworthy work-related accomplishments. Non-cash awards that meet all the following requirements need not be reported to the Payroll Office:
- The award must be of minimal value and occasional.
- The recipient should not receive more than one such award in a calendar year.
- The award must be given under conditions and circumstances that don’t create a significant likelihood of disguised pay.
- The award must be presented to employees on a basis that does not discriminate in favor of highly compensated employees, and
- The cost or value of the award is limited to $100 per employee.
If the above requirements are not met, the entire amount is taxable to the employee and must be reported to the Payroll Office. (See IRS Publication 15-B; IRC §132(a)(4).)
Length of Service or Retirement Awards
An item of tangible personal property may be presented to an employee for meritorious length of service to the Institute or retirement from the Institute. Tangible personal property under this section does not include tickets to theater or sporting events, vacations, meals, lodging, stocks, bonds, securities and similar items. Awards that meet all of the following requirements need not be reported to the Payroll Office:
- The award must be given for a length of service achievement.
- The recipient must have completed at least five years of service.
- The recipient must not have received a similar gift in any of the prior four years.
- The award must be presented as part of a meaningful presentation.
- The award may not be based on an employee’s personnel classification, and
- The award is made under conditions and circumstances that do not create a significant likelihood of disguised pay.
If the above requirements are not met, the entire amount is taxable to the employee and must be reported to the Payroll Office. If the above requirements are met, only the amount in excess of $400 is taxable and reportable to the Payroll Office. (See IRS Publication 535.)
An item of tangible personal property may be presented to an employee for safety achievement. Awards that meet all the following requirements need not be reported to the Payroll Office:
- The award cannot be given to an employee who is in a professional occupational group (e.g., manager, administrator) or who is an administrative support personnel.
- The award cannot be given to more than 10% of total employees of the Institute, excluding those referenced in the first bullet, per calendar year.
- The award must be presented as part of a meaningful presentation, and
- The award is made under conditions and circumstances that do not create a significant likelihood of disguised pay.
If the above requirements are not met, the entire amount is taxable to the employee and must be reported to the Payroll Office. If the above requirements are met, only the amount in excess of $400 is taxable and reportable to the Payroll Office. (See IRS Publication 535)
Prizes, Incentives, and Other Gifts
Occasionally, units will provide tangible personal property as prizes and other gifts to encourage employee participation in an event or as an incentive to complete a survey or a questionnaire. If the cost or value exceeds $100, the entire amount is taxable and must be reported to the Payroll Office. (See IRS Publication 15-B; IRC §132(a)(4))
Gifts of tangible personal property may be presented as an expression of congratulations, for example, in the event of a wedding or birth of a child of an employee. If the cost or value exceeds $100, the entire amount is taxable to the employee and must be reported to the Payroll Office. (See IRS Publication 15-B; IRC §132(a)(4))
Gifts of tangible personal property may be presented as an expression of sympathy, for example, in the event of the death or major illness of an employee or a member of the employee’s family or household. If the cost or value exceeds $100, the entire amount is taxable to the employee and must be reported to the Tax Office. Sympathy gifts of tangible personal property should be limited to items such as flowers, plant arrangements, and gift baskets. (See IRS Publication 15-B; IRC §132(a)(4)). Cash contributions for sympathy and congratulatory gifts are allowable if made to a charity in the name of the Institute.
Grossing up the Tax on Employee Gifts, Prizes and Awards
For gifts, prizes and awards to employees, the department may request that the payroll department “gross up” the value of the gift, prize or award, so that the net payment is the desired prize or award amount. For example, an employee receives an award valued at $100. The employee will incur payroll tax withholding on the value of $100. The exact amount will depend on the employee’s personal payroll tax withholding elections. For this example, assume a 25% withholding rate and that $25 will be withheld from the employee’s paycheck. If the department would like to pay the $25 tax related to the award, the value of the award is “grossed up” to $133.33. The employee will receive a net value of $100 after tax ($133.33 x 25% = $33.33 tax; $133.33 – $33.33 = $100.00). The department will be charged the additional $33.33.
Student and Non-Employee Gifts, Prizes and Awards
Non-Employee Awards and Gifts
Non-employee awards and gifts are gifts given to recipients such as donors, potential donors, visiting dignitaries and scholars, volunteers, community members, elected and appointed officials, students, and research participants, and may include the following:
- an award for promotional and goodwill gifts.
- gifts presented as a token of appreciation for, or in recognition of, service to the Institute.
- gifts presented for meritorious academic achievement.
- incentive gifts for completion of a survey or for participation in an event or research project, and
- gifts offered as an expression of sympathy.
Dual Status as Employee and Other Status
If the gift recipient has a status as both a non-employee (such as a student or volunteer) and an employee, a determination must be made as to whether the presentation of the gift is dependent on the individual’s employment relationship with the Institute. If the gift is not dependent in any fashion on the fact that the recipient is also employed by the Institute, the gift will be treated as a non-employee transaction. If the gift relates to the employee’s employment with the Institute, the gift will be subject to the guidance set forth in the Employee Gifts, Prizes and Awards guidance above.
Cash and Cash Equivalents
Cash, gift certificates, and other cash equivalents are taxable income to students regardless of value.
Awards and gifts (cash and non-cash), combined with other payments made to non-employees, that equal or exceed $600 per calendar year, are reportable to the IRS by the Tax Office. (See IRS Instructions for Form 1099-MISC) As such, gifts, awards and prizes to students and non-employees should be appropriately reported to the Finance office so that amounts can be accumulated, and total amounts given exceeding $600 can be issued a Form 1099.
It is the responsibility of all prize recipients, regardless of the amount of the prize, to report the taxable prize received to the IRS on their personal income tax returns.
The $600 aggregate threshold does not apply to non-resident aliens. Please see the Payments to Non-Resident Alien Tax Compliance site for guidance on tax implications on payments to non-resident aliens.
Human subject payments for participating in a study or research is taxable income to the individual. Human subject payments will be reported by the Institute to the IRS on Form 1099-MISC if total payments to the individual in the relevant year are $600 or greater. It is the responsibility of all recipients, regardless of the amount of the payment, to report the taxable payment received to the IRS on their personal income tax returns. For guidance and approvals required for human subject payments, see the Human Subjects Procedures.