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Payment Types and Definitions

Â鶹¾«Æ·ÊÓƵ makes various payments to students for tuition and fees, teaching, research, and other education-related activities. In awarding and processing such payments, care must be taken to classify these payments correctly to avoid over-awarding students financial aid, causing undo financial surprises for students and tax reporting purposes. This document explains the types of payments made to graduate and undergraduate students, including scholarships, fellowships, prizes, compensation for services related to work and reimbursements and which payments require tax reporting and withholding.

Stipend: This term describes a living allowance and is generally taxable. In no instance is a stipend a payment involving services as it relates to work. Stipends include payments to the student or credits to a student’s account other than those defined as non-taxable fellowships. The payment is to provide financial assistance while the student is gaining experience and knowledge in a specific field.

• Stipends can be awarded in the form of a cash prize; awarded based on performance in a judged competition.
• Examples can include travel to conferences, research, workshops, participation in university events, and prizes, study abroad, graduate, undergraduate, internship, and research positions, or other contribution to support educational or training expenses, including tuition, and living costs.
• The funds may be considered taxable income to the recipient who is a U.S. resident or citizen for tax purposes, but are not reported as taxable income by the University on Forms W-2 or 1099-MISC.
• The funds may also be considered taxable income to the recipient who is a Non-resident Alien (NRA) for tax purposes and are reported as taxable income by the University on Form 1042-S (reporting for Non-Resident Aliens, “NRA’s”.

The most common examples of nonqualified scholarship/fellowship are payments used to pay for room, board, travel, medical expenses, etc. The following payment types are generally not considered stipends, and that term should not be used to refer to them.

• Expense reimbursement
• Bonus
• Award or prize to student

Scholarship and Fellowship: Reporting and taxation are governed by the Internal Revenue Code and Treasury Regulations and enforced by the Internal Revenue Service.  IRS regulations indicate that amounts paid to an individual are scholarship or fellowship grants if: “the primary purpose of the studies or research is to further the education and training of the recipient in his individual capacity,” and the payments did not represent compensation for services. Scholarships are to support educational pursuits or research.

All qualified scholarships and educational assistance grants will be reported by the University to the Internal Revenue Service (IRS) and to the student on IRS Form 1098-T, Tuition Statement.

Scholarships are offered to students to help cover the cost of their education based on financial need or academic achievement.  A scholarship applies to degree seeking students and is used to cover qualified tuition and related expenses, which include tuition, room, meal, and books/supplies or equipment fees.

• Scholarships have set criteria for recipient selection.
  • Colleges and Departments select recipients based on the criteria of the scholarship agreement (major, grade level, grade point average, financial need, athletic abilities, or a combination of other restrictive criteria).
  • Scholarships are offered annually and require a submitted application.

Fellowship: This term is used interchangeably with the term “scholarship” by the Internal Revenue Service (IRS) to refer to both taxable and non-taxable payments to students. There are three classifications:

1. Qualified
2. Non-Qualified
3. Trainee

Qualified Scholarship/Fellowship: This category includes payments to the student (those in a degree program) or credits to a student’s account used only for “qualified tuition and related expenses,” which are limited to tuition and required fees.

• Qualified fellowships are not taxable income to the student.
• Qualified awards do not exceed stated tuition and fee amounts.
• Qualified scholarships and fellowships are reported by the University on Form 1098-T.
• Reporting is not required on a 1042-S. Income Code 15, Exemption Code 2 (1042-S) for international students.

Non-Qualified Scholarship/Fellowship: A non-qualified scholarship or fellowship is a scholarship/fellowship payment used for expenses that are not qualified tuition or related expenses (e.g. amounts used to pay optional fees, room, board, travel, and personal expenses).

• All non-qualified scholarship/fellowship payments are potentially subject to income tax withholding and subject to reporting on IRS Form 1098-T or IRS Form 1042-S.
• The student should always maintain the documentation necessary to support information reported to the Internal Revenue Service (IRS).

Prizes & Awards: Prizes and awards are payments in recognition of charitable, scientific, educational, artistic, literary, or civic achievement, or are received as the result of entering a contest.

• Recipients are selected based on their actions to enter a contest, competition or proceeding.
• Drawing gifts or monetary payments are also classified as prizes. Prizes and awards are always taxable.
• If certain dollar thresholds are satisfied, the University will report the prize or award to the IRS and the student on IRS Form 1099-MISC, Miscellaneous Income (PDF from IRS.Gov), or on IRS Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding (PDF from IRS.Gov)

Trainee Fellowship: Payments in this category aid in the pursuit of an individual’s study or research. No past, present, or future services are expected in return for the support.

• The funds may be considered taxable income to the recipient, but are not reported as taxable income by the University on Forms W-2 or 1099-MISC. However, depending on the circumstances of the payment, payment may be reported on IRS Form 1098-T, Tuition Statement or on IRS Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding.
• If the trainee fellowship payments to the student or credits to a student’s account are used only for tuition and required fees, they are reportable to the Internal Revenue Service (IRS) by the University via Form 1098-T.
• Trainee fellowships may constitute taxable income to the fellow/trainee to the extent there are no offsetting qualified educational expenses. (Tuition and required fees are qualified educational expenses; room, board, living expenses and travel are not qualified educational expenses.)

Student Refund:  This term is used to describe the processing of a payment to a student resulting from a credit balance on the student account. The term is also applied to the payment to the student for Title IV proceeds (SEOG, Pell Grants, Federal Direct) more than the amount of tuition and fees, room and board, and other authorized charges.

Compensation for Services Related to Work: This category is defined as payments made for teaching, research and/or other activities performed for the benefit of the University, including activities for the University that may be associated with the student’s course of study and educational experience. Payments received in connection with the performance of service by a student are taxable income, and may be subject to federal, state and FICA tax withholding.

Definition of Student Workers: A student employee is a part-time employee who is duly enrolled at Â鶹¾«Æ·ÊÓƵ, is registered for classes and whose primary purpose for being at the University is the achievement of a degree or certification.

Student Reimbursements: Students who incur costs for approved activities that primarily benefit the University may be entitled to reimbursement. Student reimbursements for approved expenditures incurred are not considered reportable as taxable income to the IRS.

Types of Payments to Students and Taxation Implications: There are many different types of payments to students who attend Â鶹¾«Æ·ÊÓƵ. Each has its own taxation implications and fall into two categories:

1. Non-taxable (Excludable from Student Income)

Scholarships/fellowships that are used for qualified tuition and related expenses.

• Student reimbursements for students purchasing a service or good while acting as an “agent” of the University.
• Charitable activity student refunds for student account overpayments and/or excess Title IV funds.

2. Taxable (Includable in Student Income)

• Prizes and awards: funding provided via a stipend payment for a student to attend a conference or conduct research, such as thesis research (unless such expenses further University purposes, such as a student organization’s activities).
• Funding provided via a stipend payment for a student to go on a summer or other internship, or to go on a job search/interview.
• Funding provided via a stipend payment for room, board, and personal expenses.
• Compensation for services related to work.

To view the complete Publication 970 (2023) tax Benefits for Education, please visit .

Educational institutions, such as colleges and universities must furnish 1098-T Tuition Statements to its eligible students. It serves to alert students that they may be eligible for federal income tax education credits. Institutions may report either payments received for qualified tuition and related expenses in Box 1 or amounts billed for qualified tuition and related expense in Box 2. You, or the person who may claim you as a dependent, may be able to claim an education credit on your income tax return for the qualified tuition and related expense that were actually paid in the tax year. Receipt of Form 1098-T does not necessarily mean you qualify for a tax credit.

If you have questions about how to calculate your education tax credit, for additional information please consult your tax professional or refer to the IRS. Â鶹¾«Æ·ÊÓƵcannot and does not offer advice on tax matters.

To view your 1098-T statement Follow the steps below:

1. Sign into 
2. Select Â鶹¾«Æ·ÊÓƵSelf Service
3. Select Student Bill
4. Select Tax Notification (1098-T)

Former Students: If you are no longer able to login using MyFAU, please activate your FAUNetID by following these steps  Then follow the steps above.

For login assistance, please contact the helpdesk at www.fau.edu/helpdesk or by phone at (561)297-3999 or (866)855-8325.

Additional Resources For additional questions please visit our 1098-T FAQ’s.

You may visit the IRS Website for additional information regarding the American Opportunity and Lifetime Learning Credit. Once there, select IRS Publication 970, Tax Benefits for Higher Education.

Where do I go for additional questions about my 1098-T?

Email: webcontroller@fau.edu or call (561) 297-6101.

If you have questions about how to calculate your education tax credit, you should consult your tax professional.

Refer to IRS Publication 970, Tax Benefits for Education.

Contact the Internal Revenue Service at www.irs.gov or (800) 829-1040.

Â鶹¾«Æ·ÊÓƵdoes not provide legal, tax or accounting advice to students, parents, or authorized payers. 

W9

Sales Tax Exemption

Substitute W9

UBIT Survey

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The university processes expenditures for personal services of individuals and business entities through one of two methods – employee appointments via the payroll system or contractual services via purchase orders or contracts.  This is to provide guidance to departments in selecting between these two methods to ensure appropriate treatment for tax purposes.   

All payments for personal services are considered taxable income to the recipient.  If an employer-employee relationship exists, the payments are considered wages subject to federal withholding tax and applicable FICA contributions.  Wages are reported annually to the IRS and individual on Form W-2.  If no employee-employer relationship exists, then the payee is considered to be an independent contractor.  Independent contractors are individually responsible for remitting quarterly estimated income tax payments and self-employment (SECA) tax contributions.  Payments to most independent contractors in excess of $600 are reported annually on IRS Form 1099-MISC (Form 1099-NEC beginning with 2020 reporting).

There is no statute or regulation that defines who should be an employee or who should be an independent contractor.  The IRS and the Courts rely on common law principles to make this determination.  These principles include but aren’t limited to an evaluation of the degree of behavioral and financial control exercised by the university and the payee.  Because the facts and circumstances of each transaction are different, no particular common law principles have greater weight than others; although the IRC instructs the IRS to take into consideration the understanding of both parties about the nature of the business relationship.

Dual Classification

IRS regulation 31.3402(e)-1 suggests that an individual not receive both wages and independent contractor compensation during the same period of time from the same employer.  For purposes of administering this prohibition, the university is using 12 months as a measure of this period of time.  This means that an individual will not be approved as a vendor if the individual was previously employed by the university within the last 12 months. Exceptions to this rule must be approved by both Purchasing and Tax Services who will evaluate all of the facts and circumstances. 

Department Responsibilities and Administrative Review and Oversight

Generally, the IRS has no issue with individuals who are paid taxable and reportable W-2 wages.  The problem almost always arises when individuals who should be paid as employees are classified inappropriately as independent contractors.  These people can usually be easily identified, because they don’t have a bona fide business that is properly registered with the State and City and will be paid under their own social security number.  Departments should work carefully with the Purchasing Department before classifying these people as independent contractors.   The Purchasing and Controller’s Offices reserve the right to make the final worker classification determination.

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UBI Defined and General Information

For all public and private colleges and universities, an activity is unrelated and subject to unrelated business income tax if it meets three requirements:

1. It is a trade or business,
2. It is regularly carried on, and
3. It is not substantially related to furthering the exempt purpose of the university.

 The Internal Revenue Code contains several modifications, exclusions, and exceptions to unrelated business income.  For example, dividends, interest, certain other investment income, royalties, certain rental income, certain income from research activities, and gains or losses from the disposition of property are excluded when computing UBI.  In addition, the following activities are specifically excluded from the definition of UBI:

• Volunteer Labor – Any trade or business is excluded in which substantially all the work is performed for the university without compensation. Some fundraising activities may meet this exception.
• Convenience of Members- Any trade or business is excluded that is carried on by the university primarily for the convenience of its members, students, patients, officers, or employees. A typical example of this are the student dining facilities operated by Business Services.
• Selling Donated Merchandise- Any trade or business is excluded that consists of selling merchandise, substantially all of which the university received as gifts or contributions.

Once it has been determined that the university is carrying out an unrelated business income activity, it may be liable for tax on the UBI.  An exempt organization that has $1,000 or more of gross income from UBI must file IRS Form 990-T annually.

Identifying UBI

One method for identifying UBI is to find it in new revenue-generating contracts before the activity occurs.  To further this end, Finance and Administration has adopted the operating policy  4-OP-D-3 Revenue Generating Contracts . â€¯ This policy requires a review by the University Controller for all contracts entered by the University and any of its subordinate divisions, departments, institutes, and centers, by which will generate gross revenues of $10,000 or more to identify any and all Federal and State tax issues.   Tax Services is the University Controller’s designee to perform these reviews.  

A second method for identifying UBI is to perform an annual review of departmental budgets that are likely to generate UBI.  Tax Services has determined that these include all budgets in Auxiliary, Activities, and Athletic fund types.  Annually, Tax Administration will survey all of these budgets for UBI  (UBIT Survey ) .  Departments are basically asked to sort their sources of revenue for the fiscal year by category and to provide a written description of the purposes of the account and how the revenues are generated.  Tax Administration reviews these surveys and performs follow-up activities based on the results.  These surveys are the starting point for the work papers that will support the data we report on the annual IRS 990-T tax return.  

Unrelated business income can be generated from a large variety of university activities. As a rule, providing goods or services to the public (alumni is included in this category) is considered a taxable activity. Other examples of activities that would most likely generate UBIT are:  

• Most forms of advertising that generate revenue for the University
• Rental or sales of mailing lists
• Routine analytical or testing services to non-university users
• Travel tours for alumni or tour purpose is not authentic educational activity
• Renting equipment to non-university personnel
• Excess computer time sold to an outside company
• Online stores linked to University web sites
• Printing or audio visual sales and services to non-university users
• Parking revenues generated from general public attendance at a non-university sponsored even  
  in addition to the activity itself, consideration must be given to where the activity is conducted. If any portion of a property, whose construction was financed with tax-exempt bonds, is used to conduct unrelated business activities, the bond financing could lose its tax-exempt status. The percentage of unrelated activity taking place on the property must be monitored to ensure the overall use of the facility by exempt activities is sufficient to prevent challenges to the tax-exempt status of the property’s financing.  

How are the University’s unrelated business income taxes reported to the IRS?  

Once a year, Tax & Compliance distributes an electronic survey to all auxiliary, activity, and athletic funds budget managers requesting information about the previous fiscal year’s revenues. This survey requires budget managers to categorize their revenues by the following sources: students, faculty/staff, university departments, foundations, state government, general public, and other. Accordingly, it is important that these departments have a means of classifying and documenting these sources of sales revenue properly. Tax & Compliance reviews each survey to determine whether any potentially unrelated revenues were earned during the previous fiscal year. Departments that are found to have the potential for unrelated business revenue will receive follow-up contact from Tax & Compliance to further assess the details related to any unrelated business revenue.  

Unrelated Business Income Tax (UBIT) Questions:

An activity may be considered an unrelated trade or business if its operations meet ALL the criteria listed below:

Trade or Business
The term “trade or business” generally includes any activity carried on producing income from selling goods or performing services. A trade or business activity is one in which a profit is expected to be made. However, when an activity that is carried on for a profit incurs a loss, no part of the trade or business is excluded from the for-profit classification merely because its current operations does not result in a profit in a particular year. In addition, an activity does not lose its identity as a trade or business when it is carried on within a larger complex of other endeavors which may be related to the exempt purposes of the University.

Regularly Carried On

The trade or business must also be considered “regularly carried on “. This test considers the frequency, continuity of operations and the way the activities are conducted. Comparisons of the university activity must be made with similar commercial activities to arrive at a determination whether the activity may be taxable.

Not Substantially Related to Exempt Purposes
A regularly conducted trade or business is subject to tax if it is also not substantially related to the exercise or performance of the exempt functions of the University. The University’s need for the income from the activity to further its exempt activities does not change the taxable nature of the income produced from the unrelated activity.

What types of activities are generally included in UBIT?

Unrelated business income can be generated from a large variety of university activities. As a rule, providing goods or services to the public (alumni is included in this category) is considered a taxable activity. Other examples of activities that would most likely generate UBIT are:
- Most forms of advertising that generate revenue for the University
- Rental or sales of mailing lists
- Routine analytical or testing services to non-university users
- Travel tours for alumni or tour purpose is not authentic educational activity
- Renting equipment to non-university personnel
- Excess computer time sold to an outside company
- Online stores linked to University web sites
- Printing or audio visual sales and services to non-university users
- Parking revenues generated from general public attendance at a non-university sponsored even
In addition to the activity itself, consideration must be given to where the activity is conducted. If any portion of a property, whose construction was financed with tax-exempt bonds, is used to conduct unrelated business activities, the bond financing could lose its tax-exempt status. The percentage of unrelated activity taking place on the property must be monitored to ensure the overall use of the facility by exempt activities is sufficient to prevent challenges to the tax-exempt status of the property’s financing.

What types of activities are generally excluded from UBIT?

There are specific activities identified in the federal tax law which are exempted from unrelated business income tax even though they may otherwise have the characteristics of an unrelated trade or business:
Real Property Rents
Rent collected from outside entities is considered passive and not subject to UBIT. However, the exclusion may be lost if personal services or use of equipment are included in the rental agreement.
Income from Research Activities
In general, revenue received from research activities is excluded from unrelated business income taxes. There are certain situations that may require further analysis to determine if they fit the research exception. For example, ordinary testing and inspection of products or materials is normally not exempt from UBIT.
Member Convenience Activities
An unrelated activity conducted by the University for the benefit of its members (students, faculty, and staff) is not subject to tax unless the income is generated from sales to non-members. In this case only the non-member generated income is taxable.
Dividends, Interest, Annuities, and Royalties
These sources of income are considered passive and are generally excluded from UBIT. However, consideration must be given to the investment generating the income before a determination to exclude from UBIT. Investments in controlled organizations, partnerships, “S” Corporations, etc. will generally result in UBIT.

How are the University’s UBIT reported to the IRS?

Once a year, Tax & Compliance distributes an electronic survey to all auxiliary, activity, and athletic funds budget managers requesting information about the previous fiscal year’s revenues. This survey requires budget managers to categorize their revenues by the following sources: students, faculty/staff, university departments, foundations, state government, public, and other. Accordingly, it is important that these departments have a means of classifying and documenting these sources of sales revenue properly.

Tax & Compliance reviews each survey to determine whether any potentially unrelated revenues were earned during the previous fiscal year. Departments that are found to have the potential for unrelated business revenue will receive follow-up contact from Tax & Compliance to further assess the details related to any unrelated business revenue.

_{Last updated 4/2024.}