Welcome!
The Office of Business and Financial Services is hosting an open comment period, beginning February 7th and closing February 21th at 5 p.m. CT. In this open comment period we present a new policy topic, Payments to Students. These new policies and procedures will be found in Section 8 Payments and Reimbursements of OBFS Policies and Procedures Manual.
The proposed policies and procedures were developed from guidance created by University Student Financial Services and Cashier Operations (USFSCO) and outline eight types of common payments to students. These policies and procedures will codify existing University of Illinois System-wide requirements such as identifying the beneficiary of payment to a student and required tax reporting information. The information presented in the OBFS Policies and Procedures Manual will also display on the Payments to Students webpage, which will allow employees to see policy information along with existing university-specific process instructions.
The open comment period allows stakeholders to provide input and ask questions about specific policies that affect University of Illinois System business and their work. To review the changes and submit comments, visit the open comment website. Feedback may also be submitted directly via email at obfspolicies@uillinois.edu.
Contact: For questions contact OBFS Policies at (312) 585-9049 or obfspolicies@uillinois.edu.
Payments from Gift or Endowment Income Funds
Policy Statement
The University of Illinois Foundation (UIF) has final authority in determining how UIF governing documents are interpreted. University Counsel has final authority in determining how estate gifts to the University of Illinois System are interpreted based on governing documents, such as donor will or trust.
Reason for the Policy
Language used in donor fund agreements has varied over time, making interpretation difficult. Units must be aware of this and accept interpretation from UIF or University Counsel when paying students from gift or endowment income funds to ensure compliance with Internal Revenue Service (IRS) and U.S. Department of Education (ED) guidelines on how payments to students must be reported.
Applicability of the Policy
Units processing payments to students from gift funds (4M or 2G fund type) or university endowment income funds (4J fund type).
Procedure
Once UIF or University Counsel has determined the true intent of the governing document(s), UIF’s or University Counsel’s interpretation must be enforced based on the definitions provided within each payment type listed in Payments to Students, not necessarily as worded in the governing document(s). For example, an older governing document may use the term “award”, whereas the true intent as determined by the UIF or University Counsel is a scholarship. Payments from this fund must therefore be processed as scholarships, not as awards.
Tangible Items
Policy Statement
Purchasing tangible items (e.g. laptops, computers, I-Pads, research equipment) with a value of $200 or more for students is not allowed.
Reason for the Policy
The Internal Revenue Service (IRS) and the U.S. Department of Education (ED) impose strict guidelines by payment type on how payments to students must be reported. See Determine the Allowability of Gifts, Prizes, and Awards to Individuals and Payments to Students for additional information.
Applicability of the Policy
Purchasing tangible items for students.
Procedure
Units that wish to use available resources to provide funding for tangible items must do so in the form of scholarships paid to the students’ university account. Students may then use the scholarship funds to purchase their own tangible item(s).
Units must follow applicable requirements for processing these transactions. Guidance and additional instructions are described in Payments to Students.
Prizes and Awards
Policy Statement
No restrictions are placed on how a student can use prizes and awards. If the source of the prize or award is gift funds, the donor may set the criteria for recipient selection, but may not select the recipient.
Reason for the Policy
Prizes and awards are reported to the Office of Student Financial Aid (OSFA) and considered a resource when determining the student's financial aid eligibility. Therefore, these payments may have an impact on the type and amount of financial aid the student is eligible to receive. OSFA will make the necessary adjustments to the student’s financial aid upon receiving notification of the payment. These adjustments may create or increase a balance due on the student’s university account. The University of Illinois System’s reporting responsibility with respect to Federal Student Aid (FSA) and any other financial assistance received by students is outlined in the FSA Administrative & Related Requirements (Chapter 3), specifically page 2-33, "Coordinating Official". For additional information, see Payments to Students.
Applicability of the Policy
Students receiving prizes and awards. Recipients of prizes and awards are typically selected through a contest or competition, or in recognition of some sort of charitable, scientific, educational, artistic, literary, or civic achievement, and are not restricted to educational purposes.
Procedure
The Banner account code used for prizes and awards issued to students is 181700; the program code rolls up to NACUBO function 1789.
Prizes and awards are reported as taxable income to the IRS and the recipient on Form 1099-MISC, Miscellaneous Income, by University Payables (UPAY). A Social Security Number (SSN) is required for IRS Form 1099-MISC reporting. Therefore, payment of prizes and awards will be suspended if no valid SSN record exists in Banner. Before submitting prize and award requests, units are strongly encouraged to check Banner form SPAIDEN for asterisks in the SSN field and to instruct recipients whose SSN field is blank to present documentation of their SSN to their Registrar’s Office.
The IRS imposes different tax requirements for Nonresident Alien recipients of prizes and awards; for details please visit Award, Prize and Human Subject Payments.
Units must follow applicable requirements for processing these payments. Guidance for reporting payments and additional instructions are described in Payments to Students.
Payments to Non-Matriculated Students
Policy Statement
Payments to non-matriculated students for services rendered to the University of Illinois System are reported as compensation. Payments to non-matriculated students who are not expected to perform services for the system are reported as taxable miscellaneous income.
Since non-matriculated students are not enrolled in a degree program, the system has no IRS Form 1098-T and no U.S. Department of Education (ED) Title IV financial aid reporting requirements.
Reason for the Policy
The IRS and ED impose strict guidelines by payment type on how payments to students must be reported. For additional information, see Payments to Students.
Applicability of the Policy
Non-matriculated students receiving payment from the system.
Procedure
Payments for services rendered to non-matriculated students are reported on Form W-2 by University Payroll and Benefits (UPB).
Payments to non-matriculated students who are not expected to perform services for the system are processed via TEM and are reported on Form 1099-MISC, Miscellaneous Income, by University Payables (UPAY).
For additional information, see Payments to Students.
Assistantships
Policy Statement
Assistantships are considered compensation for services rendered.
Reason for the Policy
The Internal Revenue Service (IRS) and the U.S. Department of Education (ED) impose strict guidelines by payment type on how payments to students must be reported. For additional information, see Payments to Students.
Applicability of the Policy
Students receiving assistantships.
Procedure
Assistantships are paid as wages by University Payroll and Benefits (UPB).
For U.S. Citizens, Permanent Residents, and Resident Aliens for tax purposes, Assistantships are reported to the IRS and the student employee on IRS Form W-2 as wages.
For Nonresident Aliens, Assistantships are reported on either IRS Form 1042-S or Form W-2.
For additional information, see Payments to Students.
Research and Travel Payments
Policy Statement
Units must determine and document whether and why the student or the University of Illinois System is primary beneficiary of a research or travel payment. When the system and the student seem to derive equal benefit, units should designate the student as primary beneficiary.
When the student is primary beneficiary, research and travel payments must be paid as Scholarships, Fellowships or Educational Assistance Grants. The only exceptions to this rule are:
- Research expenses for human subject payments,
- Wages paid to student workers, and
- Purchases of system property or equipment that retains functional value after the student’s research is complete and remains in the system’s possession.
Reason for the Policy
The Internal Revenue Service (IRS) and the U.S. Department of Education (ED) impose strict guidelines by payment type on how payments to students must be reported. For additional information, see Payments to Students.
Applicability of the Policy
Students receiving research and travel payments.
Procedure
Units must follow applicable requirements for processing these payments. Guidance for identifying beneficiary, instructions for reporting payments, and additional information about sponsored research funds are described in Payments to Students.
Scholarships, Fellowships and Educational Assistance Grants
Policy Statement
As defined in IRS Publication 970 Tax Benefits for Education, scholarships, fellowships and educational assistance grants are amounts paid for the benefit of an individual to aid in the pursuit of study or research. No past, present or future services are expected in return for these payments, nor are recipients expected to repay them. These payments support educational needs, such as, tuition, fees, room, board, supplies and travel, primarily for the benefit of the student's academic development.
Scholarships, fellowships and educational assistance grants designated for qualified expenses (i.e. tuition and mandatory fees, books, or supplies) are not taxable income to the recipient. However, scholarship, fellowship and grant payments for unqualified expenses (e.g. room, board, travel, research, non-mandatory fees, books or supplies) are taxable income to the recipient. It is the student’s responsibility to determine and report to the IRS taxable scholarships, fellowships and/or grants received.
Reason for the Policy
The Internal Revenue Service (IRS) and the U.S. Department of Education (ED) impose strict guidelines by payment type on how payments to students must be reported. For additional information, see Payments to Students.
Applicability of the Policy
Students receiving scholarships, fellowships and educational assistance grants. Scholarships, fellowships and educational assistance grants are reported to the Office of Student Financial Aid (OSFA) and considered a resource when determining the student's financial aid eligibility. Therefore, these payments may have an impact on the type and amount of financial aid the student is eligible to receive. OSFA will make the necessary adjustments to the student’s financial aid upon receiving notification of the payment. These adjustments may create or increase a balance due on the student’s university account. The university’s reporting responsibility with respect to Federal Student Aid (FSA) and any other financial assistance received by students is outlined in the FSA Administrative & Related Requirements (Chapter 3), specifically pages 2-33, "Coordinating Official".
Procedure
The Banner account code used for scholarships is 181100; the program code rolls up to NACUBO function 1787. The Banner account code for fellowships used to pay educational expenses is 181300, the Banner account code for fellowships used to pay living expenses is 281300; the program code for fellowships rolls up to NACUBO function 1788.
Scholarships, fellowships and grants paid to U.S. Citizen and Resident Alien students are reported to the IRS and the recipient on Form 1098-T, Tuition Statement, by University Student Financial Services and Cashier Operations (USFSCO). A Social Security Number (SSN) is required for IRS Form 1098-T reporting.
Scholarships, fellowships and grants paid to Nonresident Alien students are not reported on Form 1098-T unless the student requests USFSCO to do so. However, with the exception of qualified scholarships and fellowships, and W-2 reportable wages, all payments to Nonresident Alien students are reported to the IRS and the recipient on Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, by University Payroll and Benefits (UPB). Withholding may be required on these payments. For additional information, see Payments to Foreign Nationals.
Units must follow applicable requirements for processing these payments. Guidance for reporting payments and additional instructions are described in Payments to Students.
Additional Resource
See IRS Publication 970 Tax Benefits For Education for additional information regarding taxability of these payments.
Recruitment and Public Service Participation Payments
Policy Statement
Payments may be made to students to participate in recruitment or public service programs on behalf of the University of Illinois System. These payments primarily benefit the system but are taxable income to the recipient.
Reason for the Policy
The Internal Revenue Service (IRS) and the U.S. Department of Education (ED) impose strict guidelines by payment type on how payments to students must be reported. For additional information, see Payments to Students.
Applicability of the Policy
The policy is applicable to students receiving payments to participate in recruitment and public service participation programs.
Procedure
The Banner account code used to pay students for participating in recruitment and public service programs is generally 149110.
Payments to students participating in recruitment and public service participation programs are reported to the IRS and the recipient on Form 1099-MISC, Miscellaneous Income, by University Payables (UPAY). A SSN is required for IRS Form 1099-MISC reporting. So before submitting payment requests, units are strongly encouraged to check Banner form SPAIDEN for asterisks in the SSN field and to instruct recipients whose SSN field is blank to present documentation of their SSN to their Registrar’s Office. These payments may be suspended if no valid SSN record exists in Banner.
Recruitment and public service participation payments are processed via TEM including a clear and comprehensive description with supporting documentation of the U of I System business purpose and benefit. Units must follow applicable requirements for processing these payments, including the requirement that payment or reimbursement requests be entered in TEM within 60 days of the date the expenditure was incurred. Guidance for reporting payments and additional instructions are described in Payments to Students.
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