[ Corporate Tax ]
Taxation of Student Prizes
Cash, gift certificates and other cash equivalents are taxable income to students regardless of value. The giving of these items as prizes are strongly discouraged.
Scholarship prizes won in a contest are not scholarships or fellowships if you do not have to use the prizes for your education. If you can use the prize for any purpose, the entire amount is taxable.
Taxable Scholarships and Fellowships
If you received a scholarship or fellowship, all or part of it may be taxable, even if you did not receive a Form W-2. Generally, the entire amount is taxable if you are not a candidate for a degree.
If you are a candidate for a degree, you generally can exclude from income that part of the grant used for:
Tuition and fees required for enrollment or attendance, or
Fees, books, supplies, and equipment required for your courses.
You cannot exclude from income any part of the grant used for other purposes, such as room and board.
Prizes & Awards
Prizes and awards are amounts received primarily in recognition of religious, charitable, scientific, educational, artistic, literary, civic achievement, or as the result of entering a contest. All prizes and awards (with the exception of qualified scholarships) are includible in gross income (Code Sec. 74 (a); Reg. § 1.74-1(b)) unless all of the following conditions are met:
a. The recipient was selected without any action on his or her part to enter the contest.
b. The recipient is not required to render substantial future services as a condition to receive the prize or award.
c. The prize or award is transferred by the payer to a government unit or tax-exempt charitable organization as designated by the recipient.
All three of the above conditions must be met in order to exempt the prize from taxation.
IRS Reporting Requirements
For US and resident alien students, all prizes in the amount of $600 or greater must be reported by the University to the IRS on form 1099-MISC. It is the responsibility of all prize recipients, regardless of the amount of the prize, to report the taxable prize received to the IRS on their personal income tax returns.
For non-resident alien students, the University is required to withhold 30% tax on the full amount of the prize. The prize amount will be reported to the IRS and to the student on form 1042-S.
Department Reporting Responsibilities
For prizes of $600 or more issued to US students and resident alien students, the following documentation must be forwarded to the Individual Disbursement Services Department (IDS):
- The student name and address
- A W-9 with the student’s social security number
- Value of the prize
For prizes issued to non-resident alien students of $100 or more, the following documentation must be forward to the Individual Disbursement Services Department (IDS):
- The students name and address
- Value of the prize
- University of Pennsylvania Foreign National Information Form (see Comptroller’s webpage, payroll forms section) http://www.finance.upenn.edu/forms/fniform.pdf
- A copy of the student’s I-94 Card, Visa, Passport and I-20 / DS 2019 or I-797
Note-If the non-resident alien student is an employee of the University, only the student’s name, address, and prize value is required to be forwarded to IDS.
It is important to inform the recipients of the income tax consequences of their winnings. Even in situations where the University is not required to report winnings, the recipients are responsible for reporting such payments on their individual tax returns.
The University is not in the position to offer specific tax advice. It is recommended that the student consult with a tax professional.