Many colleges and universities offer stipends to students, particularly for those who provide services that schools would otherwise be required to outsource. Among the roles that students can fill is Resident Assistant/Advisor, or RA. In addition to paid stipends, most colleges and universities provide housing for these students, as living on campus is a requirement for their duties of on-call responsibilities and oversight of undergraduate students.
The question arises as to the tax implications of these stipends and the housing provided to students. Would they be considered taxable income? If so, what filing obligations are required for colleges and universities that provide them?
To answer this question, all compensation received by the students needs to be broken out into its component pieces – (1) compensation for services performed, and (2) fringe benefits (i.e., housing) – as the tax consequences of each will differ. Once broken out into its different components, we must turn to Internal Revenue Code (IRC) Sections 117(a)(1)(A) and 119(a) to provide guidance.
IRC Section 117(a)(1)(A) excludes from income any amount received as a “qualified scholarship,” defined as “any amount received by an individual as a scholarship or fellowship grant to the extent the individual establishes that, in accordance with the conditions of the grant, such amount was used for qualified tuition and related expenses.” IRC Section 117(c) goes even further in defining a qualified scholarship and indicates that only amounts that do not represent compensation for research, teaching, or other services in the nature of part-time employment, unless it is required of all candidates for the particular degree, are excluded.
It is important to look at the facts of each situation to determine whether amounts paid as stipends represent payment for the performance of services or are only to offset living expenses during participation in a teaching or research program that is required of all candidates. If, for example, the students are selected to receive stipends based upon their qualifications to perform certain duties under the supervision and direction of the school, these stipends would not meet the definition of a qualified scholarship as mentioned above. Therefore, this would be considered taxable income to the students and reportable on Form W-2 as wages. Colleges and universities should maintain adequate documentation and recordkeeping for all such students to ensure that tax forms are properly and timely issued.
The second form of compensation mentioned is housing that is provided to these resident advisors. IRC Section 119(a) specifically excludes from income the value of any meals or lodging provided by the employer for the convenience of the employer, if the meals and lodging are provided on the premises, and the employee is required to accept the lodging as a condition of employment. If, for example, the RAs were to live in dedicated staff apartments in the residence halls; must be available for on-call responsibilities during holidays and other academic breaks; and would not be able to perform their duties without being physically present at the residence hall, the housing provided to these students would be a necessary condition of their employment and would therefore be excluded from taxable income.
Due to the multifaceted aspects of the stipends and housing provided to students, it is important to treat each component separately and to ensure the proper treatment, as the last thing that colleges and universities would want to do is either overreport or underreport compensation.
What does CohnReznick think?Stipends and housing for resident advisors are a great way for colleges and universities to encourage participation of their upperclass students in the welfare of undergraduates. It is important to keep in mind the tax implications of such payments to their students, as well as the additional filing requirements that schools and students may encounter.
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CPA, MST, Partner & Exempt Organizations Tax Services Leader
CPA, Director, Exempt Organizations Tax Services
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