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KUMC Scholarships and Fellowships Paid with KUMCRI Funds

Policy
Purpose: 

The purpose of this policy is to clarify the difference between a scholarship or fellowship and a stipend for tax reporting purposes per the federal Uniform Guidance, Internal Revenue Code Title 26 Section 117(b), and Internal Revenue Service (IRS) Publication 970. 

Applies to: 

The University of Kansas Medical Center (KUMC), the KU Medical Center Research Institute, Inc. (KUMCRI), and each of their affiliated entities engaged in the conduct or administration of research supported by KUMC and KUMCRI.

Campus: 
Medical Center, Kansas City
Wichita
Salina
Policy Statement: 

The KUMCRI adheres to IRS reporting guidelines regarding stipends, scholarships, and fellowships for graduate students, postdoctoral fellows, and clinical fellows enrolled at KUMC paid with funds managed by the KUMCRI.  

The department requesting payment must appropriately identify the payment as a scholarship, fellowship, or stipend, and indicate the tax status.  The KUMCRI does not give tax advice or assist individuals with their tax issues.

It is the responsibility of the recipient of a scholarship, fellowship or stipend to determine if the payment is taxable and to file the appropriate forms on the recipient’s individual income tax return.

“Scholarship” or “fellowship” is not an interchangeable term with “stipend”. A stipend is taxable income. Technically, all income received is taxable. However, IRS Title 26 Section 117 offers potential exclusions from income for certain items (tuition, required fees, books and course-required supplies) when classified as scholarships or fellowships. However, this potential exclusion from income is not available for stipends. Recipients of a scholarship or fellowship may be required, as a condition of receiving the award, to perform certain activities or attend specific classes; these are not considered “services” because the benefits to the recipient are educational in nature, and the University does not gain from the activities. Scholarships or fellowships cannot be payments for services rendered as that constitutes a wage and is therefore reportable as such through payroll.

A scholarship or fellowship is a non-taxable payment to a candidate recipient if the terms of the scholarship or fellowship meet IRS guidelines (see below). If any part of the scholarship or fellowship falls outside the listed potential exclusions, then that portion is taxable. As an example, if the recipient receives scholarship funds that cover both tuition and room and board, the amount received for tuition is tax-free, while the amount received for room and board is taxable. Regardless, the entire amount of a scholarship or fellowship is taxable if the recipient is not a candidate for a degree. As such, postdoctoral fellowships are usually taxable as no degree is being sought. Predoctoral scholarships and predoctoral fellowships are generally without tax consequences as long as the Federal Codes below are met. The recipient should be aware that scholarships and fellowships may have potential for tax consequences.

Per IRS Publication 970, a candidate for a degree is a person who:
1. Attends a primary or secondary school or is pursuing a degree at a college or university, or
2. Attends an accredited educational institution that is authorized to provide:
    a. A program that is acceptable for full credit toward a bachelor’s or higher degree, or
    b. A program of training to prepare students for gainful employment in a recognized occupation.    

Stipends are regular allotments or allowances to students to defray living expenses. The stipend does not meet the same requirements as those set forth for scholarships and fellowships; therefore the stipend payment has tax consequences. Stipends are not to be confused with wages. Wages for services are reported through payroll.

Federal Codes: Per Internal Revenue Code Title 26 Section 117 (b):
        (b) Qualified scholarship
              For purposes of this section—
                   (1) In general the term “qualified scholarship” means any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.  
                   (2) Qualified tuition and related expenses

              For purposes of paragraph
                   (1) the term “qualified tuition and related expenses” means—
                        (a) tuition and fees required for the enrollment or attendance of a student at an educational organization described in section 170(b)(1)(A)(ii), and
                        (b) fees, books, supplies, and equipment required for courses of instruction at such an educational organization.

Per IRS Publication 970, scholarships and fellowships are tax free only if:

  • The recipient is a candidate for a degree from an accredited educational institution, whether it is a primary or secondary school, or college or university;
  • The recipient uses the scholarship or fellowship to pay for qualified educational expenses such as:
    • Tuition and fees required to enroll at or attend an eligible educational institution.    
    • Course-related expenses such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in the course of instruction.
  • The terms of the scholarship or fellowship do not require that it be used for other purposes, such as room or board, or specify that it cannot be used for tuition or course-related expenses. Expenses that do not qualify; i.e. are taxable:
    • Room and board
    • Travel
    • Research not associated with the completion of a degree (Service-related Research) - Clerical help
    • Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution
    • Fees paid to the institution as a condition of enrollment or attendance.
Contact: 

Associate Vice Chancellor for Research Administration: 913-588-5436
KUMCRI Senior Deputy Director and Chief Financial Officer: 913-588-5313
KUMCRI Controller: 913-588-5749

Approved by: 
Vice Chancellor for Research
Approved on: 
Tuesday, August 26, 2008
Effective on: 
Wednesday, September 3, 2008
Review Cycle: 
Annual (As Needed)
Definitions: 

Compensation: wages, tips, and other compensation for work performed subject to income tax withholding.

Fellowship: An amount paid for the benefit of an individual to aid in the pursuit of study or research.

IRS Form 1099: Informational return sent to the IRS to report various kinds of non-wage payments made to individuals. These payments are not subject to tax withholdings but are considered taxable income and required to be reported to the IRS.

IRS form W-2: An employer automatically withholds and pays all of the necessary employee income taxes as required by the IRS.

Scholarship: An amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of studies.

Stipend: A taxable payment made to an individual in accordance with pre-established levels to provide for the individual's living expenses during the period of training.

Wage: The compensation to an employee, agreed upon by the employee and employer, for work completed by the employee.

Keywords: 
Fellows, wages, pay
Review, Approval & Change History: 

05/06/2016: Removed Date Last Reviewed
04/18/2016: Uploaded into Policy Library
11/15/2015: Updated to reflect Uniform Guidance, updated contacts
08/18/2015: Revised
09/03/2008: Effective Date
08/26/2008: RAC Approved

Research and Sponsored Projects Category: 
Research and Sponsored Projects

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