Rensselaer makes various payments to 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 made to both graduate and undergraduate students, including scholarships, fellowships, stipends, prizes and awards, compensation for services, and travel reimbursements. This page will also identify which type of payment is taxable income to the student and which payments Rensselaer must report to the Internal Revenue Service (IRS). Reporting and taxation of student 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 a student 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 student 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 a student 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.
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 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 funded research grants will be considered non-taxable to the students.
Student travel payment is generally considered to be 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 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 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.
Travel reimbursements paid from non-federally funded grants 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.
Prizes and Awards
A prize or award given to a student in recognition of academic achievement or special recognition (i.e., writing contest, business competition) is taxable income to the student. Prizes and awards will be reported by the Institute to the IRS on Form 1099-MISC if total papyments to the student in the relevant year are $600 or greater. 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.
Human Subject Payments
Human subject payments for participating in a study or research is taxable income to the student. Human subject payments will be reported by the Institute to the IRS on Form 1099-MISC if total payments to the student 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.