FIN 422–01: Student Financial Support
To describe the payment of student financial support to ASU students
Internal Revenue Service
Noncompensatory student financial support includes ASU-awarded scholarships, fellowships, grants, and noncompensatory stipends, including tuition and registration fee waivers, for which the student is not required to perform any type of service, including research-related services, internships or other participation. For example, the award of a graduate student’s tuition waiver cannot be contingent upon his or her performance of duties as a teaching assistant. If the student is required to perform services of any kind, payment must be made through the ASU payroll system or, on a limited basis, as an independent contractor. The Tax Unit of Financial Services at 480/965-8479 is available to offer assistance in determining whether services are being provided under a particular scholarship, fellowship, grant, stipend, or waiver and if so, whether employee or independent contractor treatment is appropriate.
Payments for Continuing Services
Compensatory payments made to ASU students in exchange for services rendered on an on-going basis (assistantships, associateships, internships, stipends, etc.) to either ASU or another organization, e.g., a company with an internship, are taxable compensation. These payments must be established through the payroll system and are subject to payroll taxes being withheld from each paycheck.
Independent Contractor Payments
Compensatory payments made to ASU students in exchange for services rendered on a noncontinuous basis may be eligible for payment as independent contractors. These payments are taxable income and are reported to the Internal Revenue Service on Federal Form 1099. Guidance on payments under the independent contractor status is included in FIN 421–01, “Guest Lecturers, Consultants, and Other Independent Contractors.”
Most noncompensatory student financial support is required to be processed through the university’s student financial aid system administered by Financial Aid and Scholarship Services. However, a limited number of noncompensatory student financial support payments paid from sponsored accounts (generally federally funded student grants) may be processed directly by departments submitting a Payment Voucher (PV) coded to the noncompensatory student financial support object code series, 7700.
Services cannot be required of students receiving noncompensatory student financial support. Noncompensatory payments made with a PV submitted to Payables and Reimbursements must be accompanied by a Direct Student Financial Support Payments Certification form and a copy of the student’s award letter.
Prize and/or award payments for bonafide student competitions or year-end departmental awards may also be paid directly to the students, and the same documentation requirements apply. These payments must be coded to 7700 03 for year-end tax reporting purposes.
All noncompensatory student financial support is paid on an object/sub-object code starting with 7700. Noncompensatory student financial support is not permitted on state agency/orgs, i.e., agency/orgs with the third digit of the agency coded as “1.”
Income Tax Considerations
All awards, scholarships, fellowships, grants, and stipends to ASU students for which no services are required, whether paid through the Financial Aid and Scholarship Services or directly by a department, are taxable nonemployee income to the recipient, except for the portion of these funds used for tuition, registration, other university fees, books, supplies, and equipment required for the course(s) being taken. The recipient is responsible for determining the value of tuition, registration, other university fees, books, supplies, and equipment.
Although the university is not required to provide reporting to the Internal Revenue Service (IRS) on noncompensatory student financial support, students are encouraged to collect relevant information on their awards (and eligible expenses for offset) on an ongoing basis throughout the year in order to be able to easily evaluate the potential for taxable income. Information on the taxability of scholarships and fellowships is included in class schedules for each semester. Additional information on the taxability of scholarships can be obtained from the following IRS publications and forms:
These publications and forms can be obtained from the Internal Revenue Service at a toll free number, 1–800–827–FORM, or the Web site at www.irs.www.irs.gov/formspubs/index.html.
Payments to Nonresident Aliens
For all noncompensatory student financial support payments requested with a PV (payments coded to 7750 and 7700 xx series object codes), the Payables and Reimbursements unit of Financial Services reviews the student’s country of citizenship using the university registrar’s database. If the student is not a U.S. citizen, the payment request and documentation is forwarded to the Tax Unit of Financial Services for computation of the necessary exclusions and withholding, as well as the completion of the IRS Form W-8BEN if applicable. See FIN 425–05, “Student Financial Support Payments to Nonresident Aliens,” for more information.
For information on coding, see the Financial Services, Financial References Web page.
For information on independent contractor payments, see FIN 421–01, “Guest Lecturers, Consultants, and Other Independent Contractors.”
For information on financial support payments to postdoctoral fellows, see FIN 422–03, “Postdoctoral Fellow Financial Support.’
For information on student support payments to nonresident aliens, see FIN 425–05, “Student Financial Support Payments to Nonresident Aliens.”
For information on financial assistance, see the Student Services Manual—SSM 300 section, “Student Financial Assistance.”
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