A scholarship is generally an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies. See IRS Publication 970. Individuals receiving scholarship stipends are not employees of the University. Scholarship Stipends are typically paid on a quarterly basis at the beginning of each academic quarter. Scholarship stipends are not subject to withholding of income taxes, Social Security, or Medicare.
Required Documents for Payment
Permanent Resident/Resident Alien
- W9 Request for Taxpayer Identification Number and Certification
- Copy of the Green Card/Resident Alien Card
- Immigration Document
- Social Security Number, Individual Taxpayer Identification Number, Receipt for Social Security Number or W7
- W-8BEN Form or W9 Form (if student is a Resident for Tax)
Payments to Foreign Nationals
Scholarship stipends paid to Non-US Citizens are paid through the biweekly payroll. These payments are not wages and the stipend recipients are not considered employees of the University.
Scholarship stipends are entered into AIS by the Divisional Dean’s Office. Summer stipends can be submitted directly to payroll via the ePayment system. Payroll Services receives AIS scholarship stipend requests daily. The requests will be paid on the next available biweekly payroll – provided all alien documentation is received by Payroll Services.
Payroll procedure to issue stipend checks to foreign students
Payroll Services will issue stipend checks as long as the foreign student completes the UPP-192 (and attaches appropriate documentation) and form W-8BEN. Students need to apply for a Social Security Number from the Social Security Office, OR for an Individual Taxpayer Identification Number (whichever is appropiate) in a timely fashion and report the number to Payroll Services once received.
Claiming a Tax Treaty
The University will not be able to grant tax treaty exemptions until the permanent SSN or ITIN is received. Therefore, when the student receives her/his SSN or ITIN, a new W-8BEN form should be completed and the tax treaty benefit can be claimed. If the student qualifies for the treaty claim, the alien taxes withheld from the stipend payment will be processed for refund in the current biweekly payroll schedule, as long as the new W-8BEN form is completed correctly and received by Payroll Services.
Payroll requirements for Foreign Students Living and Studying Overseas
Under the sourcing rules for scholarship and fellowship grants, funds paid to or on behalf of a nonresident alien studying overseas is foreign source income regardless of the residency of the payer. The University has no withholding or reporting obligations related to the payment, but does have to account for these payments under a separate earnings code. Therefore, each department must identify those students who are living and studying overseas. The Dean should submit a letter to Payroll Services that provides the following information: name, student ID, terms of the scholarship/grant and time period.
Student Travel Awards and Reimbursements
POLICY:Travel reimbursements are not reportable to the Internal Revenue Service (IRS) as income to the student if the student can document that the travel:
- Directly supports a faculty member's project or research program, or
- Is related to presenting at a conference, or
- Is an integral part of the student's degree work, or
- Is official University Business
Any reimbursement to an undergraduate or graduate student which has not meet one of the criteria above for University student travel and reimbursement will be taxable scholarship income to the recipient, but not reported on Forms W-2 or 1099-MISC.* It is the recipient's responsibility to maintain records for these scholarship payments.
*Nonresidents for tax are required to have a 14% federal withholding and the payment will be reported as scholarship income (Income code 16) on form 1042-S.
To certify the student travel or reimbursement is a University reimbursement, the student and Faculty member or Principal Investigator (if paid from a federal grant) must complete Payroll Form "Student Certification for Business Related Travel Reimbursement". If the certification letter is not attached to the reimbursement request, the payment will be considered taxable scholarship income.
Student reimbursements are of a complex nature and the below explanations are not inclusive and determinations may need to be made on an individual basis.
The student travel or reimbursement payment is generally considered reimbursement (nontaxable, non-reportable) if:
- The primary purpose and original intent is for the University to obtain useful results from the project/research
- Results or research will be used by the University
- Research is performed to fulfill University's obligations to outside funding entity
- Activity is required for degree or credit
- Activity impacts the student's grade
- Student is presenting or actively participating in a conference or competition on behalf of the University
Examples of reimbursement:
- Student travels to Texas to represent the University in a scholastic competition.
- Student travels to Michigan 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, which happens to be the topic of her dissertation. The University would otherwise perform research on this topic, regardless of the student's research – the University is the primary beneficiary.
The student travel or reimbursement payment is generally considered to be scholarship (taxable, reportable) if:
- 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
Examples of 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.
NOTE: If payment requires that the student perform services to receive the funding, this is considered wage/compensation. Payment should not be made as a reimbursement or scholarship; payment is required to be processed through Payroll Services.
TAXES and REPORTING:
Domestic Students (includes U.S. Citizens, permanent residents and residents for tax)
Business related reimbursements are not considered reportable or taxable income. There is no tax withholding on scholarship/fellowship payments. Scholarship/fellowship income is reportable and taxable income to the recipient. This income is not reportable on a tax document (e.g. W2 or 1099), but is considered to be self-reported income per IRS publication 970. Students may be required to pay estimated quarterly taxes for federal (IRS form 1040-ES) and Illinois State government (IL-1040-ES) on this income.
Foreign Students (nonresidents for tax)
Business related reimbursements are not considered reportable or taxable income. There is a 14% federal tax withholding on scholarship/fellowship payments. Scholarship/fellowship income is reportable and taxable income to the recipient. This income is reportable on a tax document 1042-S. Students may be required to pay estimated quarterly taxes to the Illinois state government (IL-1040-ES) on this income.
To help communicate the IRS policy and regulations on student payments to individuals receiving scholarship or travel reimbursement payments, Payroll Services has created a sample memorandum for departments/divisions to provide to students.
Business Related Travel Reimbursement
Travel reimbursements should be requested through the Service Now Portal. Each request must have a Payroll Form "Student Certification for Business Related Travel Reimbursement".
Scholarship Payments should be entered into the AIS (if appropriate) or through the Service Now Portal.