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Prizes, Awards and Scholarships Policy

Prizes, Awards and Scholarships Policy

DePauw University

Prizes, Awards, and Scholarships Policy

Status:  Adopted 3/31/2016

 Background

The Internal Revenue Code states that under certain circumstances the value of prizes, awards, scholarships, and student travel is considered income. Non-US citizens may be subject to additional tax rules, depending on circumstances and treaty status.  Note that IRS rules governing students differ from rules that govern faculty and staff.  In particular, some payments that are not considered to be taxable income for employees are considered reportable income for students.

Definitions/Policies

Qualified Scholarships and Fellowships (from http://www.irs.gov/publications/p970/ch01.html)

A scholarship is considered “qualified” if you are a candidate for a degree at an eligible educational institution and you use the scholarship or fellowship to pay qualified education expenses.  For purposes of tax-free scholarships and fellowships, the IRS defines qualified educational expenses as:

  • Tuition and fees required to enroll at or attend an eligible educational institution, and
  • Course-related expenses, such as fees, books, supplies, and equipment that are required for a credit-bearing course at the eligible educational institution. These items must be required of all students in the course.
  • Qualified scholarships do not exceed stated tuition and fee amounts.

The IRS defines the following expenses that do not qualify:

  • Room and board,
  • Travel,
  • Research,
  • Clerical help, or
  • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution (including equipment for a specific class or major).

Please note that equipment owned by DePauw that is used for academic purposes (including research) and is returned to the University after the project is completed is not considered reportable income by the IRS.

Prizes and Awards

An award recognizes exceptional performance, special achievement, etc.   Prizes and awards are amounts received primarily in recognition of religious, charitable, scientific, educational, artistic, literary, civic achievement, or as the result of entering a contest. All prizes and are includible in gross income unless there are restrictions on the prize or award (Code Sec. 74 (a); Reg. § 1.74-1(b)).   

However, if the recipient is required to use the disbursement for educational purposes as prescribed in the prize or award documentation, then the payment would be considered a scholarship and processed through the Financial Aid Office.

Student Travel and Reimbursement

Student travel payments are not reportable to the Internal Revenue Service (IRS) as income to the student if the student can document that the reimbursement:

  • Directly supports a faculty member's project or research program, or
  • Is related to presenting at a conference, or
  • Can be used to satisfy a graduation requirement, or
  • Is official University Business (working as an employee or representing the University in an official capacity (e.g., student competition))

 Expenses associated with travel that does not meet at least one of the four exceptions is considered a Reportable Payment to the IRS.

 Examples of Payments Eligible for Expense Reimbursement:

  • Student travels to another state to represent the University in a scholastic competition.
  • Student travels to present at a conference, where the student's name is published (poster, website, brochure) as a presenter/contributor at the conference.
  • Student travels to China to perform research.  The University would otherwise perform research on this topic, regardless of the student's research – the University is the primary beneficiary.

 Examples of non-reimbursement travel payments and self-reported income by the Recipient to the IRS

  • Reimbursement is made for activities in which the University is relatively disinterested or the research is student led
  • The project/research's primary purpose and original intent is to further the student's education or training
  • The University obtains little or no benefit
  • Activities are performed to contribute to the development of the skills needed in the student's studies

 Fellowships

A fellowship, as defined in Internal Revenue Service (IRS) Publication 970: Tax Benefits for Education is generally an amount paid for the benefit of an individual to aid in the pursuit of study or research. No past, present or future services are expected in return for the support. Treasury Regulation Section 1.117-4(c) provides that:

amounts paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research are considered to be amounts received as a scholarship or fellowship grant for the purpose of section 117 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 amount provided by the grantor for such purpose does not represent compensation or payment for the services described in subparagraph (1) of this paragraph.  Neither the fact that the recipient is required to furnish reports of his progress to the grantor, nor the fact that the results of his studies or research may be of some incidental benefits to the grantor shall, of itself, be considered to destroy the essential character of such amount as a scholarship or fellowship grant.

Procedures:

All prizes, scholarships, awards, and student travel payments must be reported to the Academic Affairs Office.  The following are the procedures to be followed by the Academic Affairs Office.

Scholarships and Fellowships 

Qualified – All Tax-Free Scholarship and Fellowships must be reported to Financial Aid to be included on the student account. Refunds (if applicable) will be issued through Cash Receipts Office if the award or scholarship creates a credit balance.

 Non-Qualified – Payments that do not meet the IRS definitions of a qualified scholarship should be reported to the Business Office via a Payment Request Form.  Students should be provided the letter in Attachment A by the department as the payments may be considered taxable income by the IRS.  Nonresidents aliens are required to have a 14% federal withholding and the payment will be reported as scholarship income (Income code 16) on form 1042S.

 Prizes and Awards

If the prize/award recipient is required to use the disbursement for educational purposes as prescribed in the prize or award documentation, then the payment would be considered a scholarship and processed through the Financial Aid Office.  Prize/award payments that do not meet this exception should be reported to the Business Office via a Payment Request Form.  Payments to a student will be reported on Forms 1099-MISC if total eligible payments to the student are in excess of $600 for the calendar year.   Nonresidents aliens are required to have a 14% federal withholding and the payment will be reported as scholarship income (Income code 15) on form 1042S. 

 Student Travel and Reimbursement

Reimbursable Payments – Travel payments that are considered “reimbursable” as defined within the “Student Travel and Reimbursement” section of this document may be reimbursed to a student by submitting a Payment Request Form to the Business Office along with substantiating receipts.

 Non-Reimbursement Travel Payments – should be submitted to the Business Office as a stipend payment.  Students should be provided the letter in Attachment A by the department as the payments may be considered taxable income by the IRS.  Nonresidents aliens are required to have a 14% federal withholding and the payment will be reported as scholarship income (Income code 15) on form 1042S.

 Fellowships

Fellowship payments that primarily aid in the student’s study or research should be submitted to the Business Office as a stipend payment.  Students should be provided the letter in Attachment A by the department as the payments may be considered taxable income by the IRS.  Nonresidents aliens are required to have a 14% federal withholding and the payment will be reported as scholarship income (Income code 15) on form 1042S.

 Fellowship payments for services rendered to the University should be reported the Office of Human Resources for inclusion in an upcoming payroll.

 Attachment A – Fellowship, Scholarship and Award Letter

 Click here for the executed Fellowship, Scholarship and Award Recipients Letter.

 

Requisition Code for Award Recipients

When it is determined who is awarded these funds, the department will notify the recipient and include the Fellowship, Scholarship and Award Recipients letter mentioned above.

A requisition is created by using the e-services payment request link. 

Page one of the requisition is to be completed using the recipient’s name, address, and department budget number along with preferred mailing option selected.

Page two of the requisition requires a specific code in the DESCRIPTION field.  The code is   LTR   and must be the first letters in the description field.  (for example:  LTR – Fellowship Research Award or LTR – award for Key Fund).  This code indicates that these funds will not be included on the annual 1099 form for the recipient, and confirms that the department issuing the award has given the recipient a copy of the Fellowship, Scholarship and Award letter.  Also, include the name of the prize/award/scholarship in the description field as shown in the example above.

It is the responsibility of the author of the requisition to include the proper code in the description field when creating the requisition.