<p>I have a question regarding the taxation of stipends and awards. A particular college has some travel awards students are given for summer. Last year, the business office began taxing the awards up front, so the students only receive about 2/3 of the award. The business office was provided information from other schools indicating that STUDENTS are responsible for paying any taxes owed - most won’t owe any, since they don’t earn much while in school, anyway. The response was, “Then they will get a refund when they file taxes” - but they need it NOW, in order to travel! The reason given for taxing up-front is that because these students also work for the school in the federal work study program, the school is required to take out taxes on any money that is paid out to them by the school. Something about how they can’t be both an employee and an independent contractor (makes no sense to me). Does anyone here have a child who worked at their school AND got a non-work award/stipend from the school? Was it taxed up-front? Or does anyone know enough about taxes to know if what the business office claims is necessary, actually is?</p>
<p>I can’t really comment on the legal/tax issues, but I can tell you that my daughter received a stipend/grant from her college (to finance a summer internship) the same year she was an employee for purposes of work study. Her wages were reported on a W-2 and the stipend was reported on a 1099; when tax time rolled around she had to file a schedule C (where of course she could deduct her out-of-pocket expenses in connection with the internship, thereby reducing tax liability). She was able to get tax advice from some source on campus – probably the career office. </p>
<p>So this idea of not being an independent contractor at the same time as being an employee doesn’t really pass the smell test for me.</p>
<p>This might be an issue impacting NRA or foreign students who are subject to WH on stipend and travel awards. US taxpayers should be able to file the correct exemptions forms. </p>
<p>Rules have changed in the past years.</p>
<p>The students might be able to change their W9 to cause a lower amount of taxes to be deducted.</p>
<p>I don’t think colleges are very good at this. Some report it on a W-2, some on a 1099 and some don’t report it at all. </p>
<p>But they are correct that if the student in question doesn’t owe tax on the money, but the university withheld it, they will get it back when they file a return.</p>
<p>By law, the university is required to withhold the taxes.</p>
<p>VeryHappy, I am curious as to why. The school says it’s because they can’t give a 1099 to an employee. Is this your understanding, or is there another reason you say this? I am not asking anyone here to give me a definitive legal answer, of course - but I am trying to get a handle on this so I can research it. The info I have seen so far indicates that the school does not have to withhold the tax, but the issue of the student also being an employee is not part of that information.</p>
<p>I used to work for a non-profit (not a school) and the IRS did not allow us to issue 1099’s to employees. They wanted all income reported together for any employee on a W-2. In recent years, the IRS has become very strict on the definition of contractor vs. employee.</p>
<p>If the individual is an employee and is being paid on a W2, then the employer has to assume all income s/he provides the employee is taxable. And the gov’t requires the employer to withhold taxes and send them to the IRS. </p>
<p>That’s my understanding.</p>
<p>Thank you so much, kiddie and VeryHappy. Your explanations match what the business office is saying.</p>