Tax Information for Student Financial Assistance / Awards
The Internal Revenue Service (IRS) has set guidelines that Loyola University Chicago (LUC) must follow in order to determine if there is any tax withholding or reporting obligation on the part of the University.
This information is intended to inform department administrators as well as students of how the University meets these obligations for scholarships, fellowships, prizes/awards, or honoraria.
As a reminder, scholarships and other financial assistance (including fellowships, prizes, awards, and honoraria) not related to a work/service requirement must be processed through LUC’s Financial Aid Office as they are generally considered a resource when determining a student's financial aid eligibility. Payments that are related to work/service must be processed through Human Resources / Payroll.
The Tax Information Certificate is a tool available to department administrators to help with providing essential information related to these awards and should accompany requests to Financial Aid or Human Resources when submitting a student’s fellowship, prize, award, or honorarium.
Scholarships
Scholarship – generally an amount allowed to a student at an educational institution for the purpose of study. Scholarships are disbursed by Financial Aid and through the Office of the Bursar, via the student’s account in LOCUS. A scholarship to a student should not be requested through Accounts Payable or Human Resources. A scholarship should not require a student to perform any services, if it does, it is considered compensation for services and is subject to payroll wage reporting and withholding and will be paid through Payroll.
A qualified scholarship is a tax-free amount (excluded from income) if it meets both these criteria:
-
The student is a candidate for a degree at an educational institution
-
Amounts received as scholarship are used for tuition, fees, books, and supplies required for enrollment or attendance at LUC
A non-qualified scholarship is not tax free (included in income) if:
-
Amounts are paid to or on behalf of a student for incidental expenses, room and board, travel, research, and optional equipment as these are considered non-qualified expenses
Scholarship payments made to nonresident alien students follow different reporting and taxation rules. See the rules for nonresident aliens below.
Question: A scholarship is awarded to a student which will provide tuition remission and free room and board. No services are required. Is this scholarship taxable?
Answer: The part of the scholarship that pays for tuition is not taxable since it covers a qualified expense. However, the amount of the scholarship that covers room and board is considered taxable income to the student. Please consult your tax service/advisor for further information on reporting your scholarships.
Fellowships
Fellowship – generally an amount paid to an individual to aid in the pursuit of study or research in order to enhance his or her training in a specific field of interest. The terms of receiving a fellowship may or may not include a service or work requirement. If a fellowship requires an individual to perform services, the fellowship will be considered compensation for services and is subject to payroll wage reporting and withholding.
Question: Are fellowship payments taxable income to recipients?
Answer: Yes, all fellowship payments are considered taxable income. Since a fellowship payment does not directly cover qualified expenses (tuition and fees required for enrollment) it is considered a non-qualified payment.
For a non-service fellowship, the University is not required to withhold income tax for a U.S. citizen or permanent resident. Fellowships processed via the student’s account in LOCUS will be included on Form 1098-T, Tuition Statement, otherwise the University does not have an obligation to issue a report to either the student or to the IRS of such amounts.
Fellowship payments that represent payment for services are processed through payroll, subject to federal and state tax withholding, and will be reported by LUC on Form W-2.
Students should keep appropriate records to facilitate the reporting for purposes of their income tax return. If you need to know the amount of a fellowship you received during the calendar year that was not reported on a Form W-2 please contact your department administrator. Please consult your tax advisor/service for further information on reporting your fellowship awards.
Fellowship awards made to nonresident alien students follow different reporting and taxation rules. See the rules for nonresident aliens below.
Question: A fellowship is awarded to a student that will require the student to be a teaching assistant; will that be considered a fellowship or compensation for services?
Answer: Paying a student in exchange for teaching is considered compensation for services.
Answer: Paying a student in exchange for teaching is considered compensation for services.
Question: A fellowship is awarded to a student who will be performing research; will that be considered a fellowship or compensation for services?
Answer: It depends on the specific circumstances surrounding the research, and whether that research is guided or independent.
-
Guided research: research under the direct supervision of LUC that primarily benefits LUC. LUC has control over the research and will use the results of the research. For example, student research that is supervised by a faculty member or a requirement that a student perform research for a specified amount of hours per week. Guided research that is required as a condition of the fellowship will be treated as compensation for services, processed thru payroll, subject to payroll tax withholding, and reported on Form W-2.
-
Independent research: research with the primary purpose to further the education and training of the student in their individual capacity. LUC does not control the research, student has the ability to direct and control the research. Such awards need to be processed by Financial Aid and via the student’s account in LOCUS and will be reported on Form 1098-T, Tuition Statement.
Prizes/Awards
-
Prizes / awards related to enrollment or in recognition of a student’s academic achievement (i.e., writing contest, business competition, first in their class) which do not directly cover qualified expenses (tuition and fees required for enrollment) is considered taxable income. Such prizes/awards must be processed through Financial Aid. Prizes / awards processed via the student’s account in LOCUS will be included on Form 1098-T, Tuition Statement.
-
Prizes where the contest was open to multiple audiences / or where participants are not required to be a student, are also considered taxable income. Such prizes should be reported by the School / Department to Accounts Payable to be reported on Form 1099-MISC, as required by the IRS.
-
Prizes that are directly related to employment achievement (i.e. “Student Employee of the Month”) are considered taxable income and will be reported on Form W-2.
Prizes / awards to nonresident alien students are reported on Form 1042-S. See the rules for nonresident aliens below.
Honoraria
- Honoraria / awards related to enrollment or in recognition of a student’s academic achievement (i.e., writing contest, business competition, first in their class) which do not directly cover qualified expenses (tuition and fees required for enrollment) is considered taxable income. Such honoraria / awards must be processed through Financial Aid. Honoraria / awards processed via the student’s account in LOCUS will be included on Form 1098-T, Tuition Statement.
-
Honoraria (typically a nominal/token amount paid as a “thank you”) for occasional services (i.e. DJ services, photographer, music performance, etc.) not directly related to a student’s enrollment or their academic program and outside of the scope of employment, are considered taxable income. Such honoraria should be submitted by the School / Department to Accounts Payable to be reported by LUC as Non-Employee Compensation on Form 1099-NEC, as required by the IRS. However, if the student has been paid during the calendar year via LUC payroll (i.e. is an LUC employee or student worker), the honorarium will be reported on the Form W-2.
Honorarium requests should not be made to pay students in lieu of wages for work performed as a student worker or as an employee. Under no circumstances should students be promised a flat fee for services that should be paid hourly under the U.S. Department of Labor’s Federal Wage and hour law requirements.
___________________________________________________________________________________________________________________________
Tax Rules for Foreign Students (Students present on a visa):
Nonresident alien (NRA) students who receive scholarships and fellowships or other awards from the University are subject to the same rules as U.S. citizens/permanent residents as to whether or not the award is taxable. However, non-qualified scholarship and fellowships to NRA students, including non-service payments, room and board, food allowances, incidental expenses, travel, and non-required equipment are subject to additional tax withholding.
Financial assistance / awards to NRA students are subject to federal tax withholding unless an income tax treaty exception applies. In order to determine whether the financial assistance is subject to tax, the recipient must enter all of their immigration information into the Sprintax Calculus Nonresident Alien Tax Compliance system. Tax treaty documents may also be required, if applicable, and must be signed and submitted through Sprintax Calculus. Students who do not provide the requested information through Sprintax Calculus will have the maximum amount of tax withholding applied.
Other Resources
For further information on scholarships and fellowships and information for determining their tax treatment, please refer to IRS Publication 970, Tax Benefits for Education.
For further information on educational tax credits please visit the IRS Tax Benefits for Education: Information Center.
Effective: August 16, 2021
Updated/Reviewed: June 2024
The Internal Revenue Service (IRS) has set guidelines that Loyola University Chicago (LUC) must follow in order to determine if there is any tax withholding or reporting obligation on the part of the University.
This information is intended to inform department administrators as well as students of how the University meets these obligations for scholarships, fellowships, prizes/awards, or honoraria.
As a reminder, scholarships and other financial assistance (including fellowships, prizes, awards, and honoraria) not related to a work/service requirement must be processed through LUC’s Financial Aid Office as they are generally considered a resource when determining a student's financial aid eligibility. Payments that are related to work/service must be processed through Human Resources / Payroll.
The Tax Information Certificate is a tool available to department administrators to help with providing essential information related to these awards and should accompany requests to Financial Aid or Human Resources when submitting a student’s fellowship, prize, award, or honorarium.
Scholarships
Scholarship – generally an amount allowed to a student at an educational institution for the purpose of study. Scholarships are disbursed by Financial Aid and through the Office of the Bursar, via the student’s account in LOCUS. A scholarship to a student should not be requested through Accounts Payable or Human Resources. A scholarship should not require a student to perform any services, if it does, it is considered compensation for services and is subject to payroll wage reporting and withholding and will be paid through Payroll.
A qualified scholarship is a tax-free amount (excluded from income) if it meets both these criteria:
-
The student is a candidate for a degree at an educational institution
-
Amounts received as scholarship are used for tuition, fees, books, and supplies required for enrollment or attendance at LUC
A non-qualified scholarship is not tax free (included in income) if:
-
Amounts are paid to or on behalf of a student for incidental expenses, room and board, travel, research, and optional equipment as these are considered non-qualified expenses
Scholarship payments made to nonresident alien students follow different reporting and taxation rules. See the rules for nonresident aliens below.
Question: A scholarship is awarded to a student which will provide tuition remission and free room and board. No services are required. Is this scholarship taxable?
Answer: The part of the scholarship that pays for tuition is not taxable since it covers a qualified expense. However, the amount of the scholarship that covers room and board is considered taxable income to the student. Please consult your tax service/advisor for further information on reporting your scholarships.
Fellowships
Fellowship – generally an amount paid to an individual to aid in the pursuit of study or research in order to enhance his or her training in a specific field of interest. The terms of receiving a fellowship may or may not include a service or work requirement. If a fellowship requires an individual to perform services, the fellowship will be considered compensation for services and is subject to payroll wage reporting and withholding.
Question: Are fellowship payments taxable income to recipients?
Answer: Yes, all fellowship payments are considered taxable income. Since a fellowship payment does not directly cover qualified expenses (tuition and fees required for enrollment) it is considered a non-qualified payment.
For a non-service fellowship, the University is not required to withhold income tax for a U.S. citizen or permanent resident. Fellowships processed via the student’s account in LOCUS will be included on Form 1098-T, Tuition Statement, otherwise the University does not have an obligation to issue a report to either the student or to the IRS of such amounts.
Fellowship payments that represent payment for services are processed through payroll, subject to federal and state tax withholding, and will be reported by LUC on Form W-2.
Students should keep appropriate records to facilitate the reporting for purposes of their income tax return. If you need to know the amount of a fellowship you received during the calendar year that was not reported on a Form W-2 please contact your department administrator. Please consult your tax advisor/service for further information on reporting your fellowship awards.
Fellowship awards made to nonresident alien students follow different reporting and taxation rules. See the rules for nonresident aliens below.
Question: A fellowship is awarded to a student that will require the student to be a teaching assistant; will that be considered a fellowship or compensation for services?
Answer: Paying a student in exchange for teaching is considered compensation for services.
Answer: Paying a student in exchange for teaching is considered compensation for services.
Question: A fellowship is awarded to a student who will be performing research; will that be considered a fellowship or compensation for services?
Answer: It depends on the specific circumstances surrounding the research, and whether that research is guided or independent.
-
Guided research: research under the direct supervision of LUC that primarily benefits LUC. LUC has control over the research and will use the results of the research. For example, student research that is supervised by a faculty member or a requirement that a student perform research for a specified amount of hours per week. Guided research that is required as a condition of the fellowship will be treated as compensation for services, processed thru payroll, subject to payroll tax withholding, and reported on Form W-2.
-
Independent research: research with the primary purpose to further the education and training of the student in their individual capacity. LUC does not control the research, student has the ability to direct and control the research. Such awards need to be processed by Financial Aid and via the student’s account in LOCUS and will be reported on Form 1098-T, Tuition Statement.
Prizes/Awards
-
Prizes / awards related to enrollment or in recognition of a student’s academic achievement (i.e., writing contest, business competition, first in their class) which do not directly cover qualified expenses (tuition and fees required for enrollment) is considered taxable income. Such prizes/awards must be processed through Financial Aid. Prizes / awards processed via the student’s account in LOCUS will be included on Form 1098-T, Tuition Statement.
-
Prizes where the contest was open to multiple audiences / or where participants are not required to be a student, are also considered taxable income. Such prizes should be reported by the School / Department to Accounts Payable to be reported on Form 1099-MISC, as required by the IRS.
-
Prizes that are directly related to employment achievement (i.e. “Student Employee of the Month”) are considered taxable income and will be reported on Form W-2.
Prizes / awards to nonresident alien students are reported on Form 1042-S. See the rules for nonresident aliens below.
Honoraria
- Honoraria / awards related to enrollment or in recognition of a student’s academic achievement (i.e., writing contest, business competition, first in their class) which do not directly cover qualified expenses (tuition and fees required for enrollment) is considered taxable income. Such honoraria / awards must be processed through Financial Aid. Honoraria / awards processed via the student’s account in LOCUS will be included on Form 1098-T, Tuition Statement.
-
Honoraria (typically a nominal/token amount paid as a “thank you”) for occasional services (i.e. DJ services, photographer, music performance, etc.) not directly related to a student’s enrollment or their academic program and outside of the scope of employment, are considered taxable income. Such honoraria should be submitted by the School / Department to Accounts Payable to be reported by LUC as Non-Employee Compensation on Form 1099-NEC, as required by the IRS. However, if the student has been paid during the calendar year via LUC payroll (i.e. is an LUC employee or student worker), the honorarium will be reported on the Form W-2.
Honorarium requests should not be made to pay students in lieu of wages for work performed as a student worker or as an employee. Under no circumstances should students be promised a flat fee for services that should be paid hourly under the U.S. Department of Labor’s Federal Wage and hour law requirements.
___________________________________________________________________________________________________________________________
Tax Rules for Foreign Students (Students present on a visa):
Nonresident alien (NRA) students who receive scholarships and fellowships or other awards from the University are subject to the same rules as U.S. citizens/permanent residents as to whether or not the award is taxable. However, non-qualified scholarship and fellowships to NRA students, including non-service payments, room and board, food allowances, incidental expenses, travel, and non-required equipment are subject to additional tax withholding.
Financial assistance / awards to NRA students are subject to federal tax withholding unless an income tax treaty exception applies. In order to determine whether the financial assistance is subject to tax, the recipient must enter all of their immigration information into the Sprintax Calculus Nonresident Alien Tax Compliance system. Tax treaty documents may also be required, if applicable, and must be signed and submitted through Sprintax Calculus. Students who do not provide the requested information through Sprintax Calculus will have the maximum amount of tax withholding applied.
Other Resources
For further information on scholarships and fellowships and information for determining their tax treatment, please refer to IRS Publication 970, Tax Benefits for Education.
For further information on educational tax credits please visit the IRS Tax Benefits for Education: Information Center.
Effective: August 16, 2021
Updated/Reviewed: June 2024