FIN 422–01: Student Financial Support

To describe the payment of student financial support to ASU students

Internal Revenue Service

University policy

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 on 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 ASU tax compliance liaison (480/965–8479) is available to provide assistance in resolving questions regarding whether services are being required for a particular scholarship, fellowship, grant, stipend, or waiver.

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.

Students performing services 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 differentiating between employee and independent contractor status is included in FIN 421–01, “Guest Lecturers, Consultants, and Other Independent Contractors.”

Documentation

Most noncompensatory student financial support is processed through the university’s student financial aid system administered by Student Financial Assistance. However, a limited number of noncompensatory student financial support payments are also processed directly by departments submitting a Payment Voucher (PV) coded to the noncompensatory student financial support object code series, 7700. A copy of the award letter needs to be attached to the hard copy of the PV.

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.

Expenditure Coding

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 Student Financial Assistance 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:

1. Publication 4—Student’s Guide to Federal Income Tax
2. Publication 520—Scholarships and Fellowships
3. Publication 519—U.S. Tax Guide for Aliens
4. Form 1040EZ and Instructions—Income Tax Return for Single and Joint Filers with no Dependents

   and

5. Form 1040NR and instructions—U.S. Nonresident Alien Income Tax Return.

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.ustreas.gov/prod/ forms_pubs/index.html.

Additional Guidance and Requirements

For additional guidance on university and IRS requirements relating to fellowships, scholarships, and student cash awards, including tuition waivers, access the Financial Services Web site.

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), Payables and Reimbursements reviews online through the University Registrar’s database the student’s country of citizenship. If the student is not a U.S. citizen, the payment request and documentation is forwarded to Student Business Services or the tax compliance liaison for computation of the necessary exclusions and withholding, and 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 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 coding, see FIN 430–01, “Overall Expenditure Coding Structure.”

For information on financial assistance, see the University Student Initiatives Policies and Procedures Manual—USI 300 section, “Student Financial Assistance.”

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