The term “stipend” is often used in the university setting, particularly when dealing with grant funds. The word “stipend” literally means “payment” but may be used in varying contexts. To correctly classify and process these payments, departments should follow the steps below.
Step 1: WHY is the individual receiving the payment?
For participating as a learner or trainee in an educational or research experience
- The primary purpose is to benefit the recipient through increased learning, knowledge or experience in the given topic area. The payment is intended to help defray living or travel expenses while participating in the program.
- Examples: high school students attending a summer program, K-12 teachers attending an in-service workshop, undergraduate students participating in a research experience (such as NSF REU)
For providing a service in connection with an educational or research experience
- The primary purpose is to pay for services rendered which benefit the University or its programs. The payment is intended to compensate the individual for his/her hours worked, expertise provided, work results, etc.
- Examples: conference speaker, workshop teacher, facilitator, discussion leader, instructor, teaching assistant, or research assistant
Step 2: WHO is the recipient?
- UA Employee – The individual is currently on UA payroll.
- UA Student – The individual is currently enrolled as a UA student, or will be enrolled for the upcoming semester. A student employee will be considered a student for purposes of this analysis.
- Non-UA Individual – The individual is neither a UA employee nor a UA student.
If the individual is a foreign national (i.e. not a U.S. citizen or permanent resident), special rules will apply. For more information, see http://taxoffice.ua.edu/foreign-national-tax-analysis
Step 3: HOW to proceed
Once you have determined the answers to Steps 1 and 2 above, refer to the Stipend Matrix for guidance on how to proceed. The matrix will address the following questions:
- Is an independent contractor form required?
- Which payment system should be used?
- What procedures and documentation are required?
- Will taxes be withheld from the payment?
- Will UA issue a tax reporting form to the recipient?
- Is the payment includible in the recipient’s income for tax filing?
For departmental assistance:
The UA Tax Office can assist in determining the proper classification of stipend payments. If your department plans to pay a stipend and you have questions in working through the above steps, please contact Carleen Johnson email@example.com
For stipend recipients:
The Stipend Matrix provides a brief overview of possible tax consequences. In addition, you may find the IRS Pub. No. 970, Tax Benefits for Education helpful. The UA Tax Office cannot give personal tax advice. For specific concerns/questions relative to your individual tax situation, you should consult your personal tax accountant or advisor.