Student workers are not automatically exempt from taxes. Earnings are generally subject to federal and state income tax withholding. However, eligible student workers may qualify for an exemption from Social Security and Medicare taxes (FICA taxes).

Eligibility for the Student FICA Exemption

Undergraduate and graduate students enrolled at least half-time may qualify for the student FICA exemption if they are not considered professional, career, or full-time employees.

To qualify, a student's employment must be incident to and for the purpose of pursuing a course of study. The educational aspect of the relationship with the University must be predominant over the service aspect.

Employment During Summer and Winter Breaks

The student FICA exemption may apply during academic breaks of five weeks or less if:

• The student was eligible for the exemption on the last day of classes before the break, and
• The student is eligible to enroll in classes following the break.

For FICA purposes, the last day of classes is considered the last day of final exams for the academic term.

Summer employment is generally not exempt from FICA taxes unless the student is enrolled and attending classes that meet the applicable half-time enrollment requirements. Employment during the winter break between the fall and spring semesters is generally eligible for the exemption.

Employees Not Eligible for the Exemption

A student worker is not eligible for the FICA exemption during any semester or summer session in which they hold multiple appointments and at least one appointment:

• Confers professional, career, or full-time employee status; or
• Provides employee benefits typically associated with regular employment.

In these situations, FICA taxes will be withheld from all earnings. Eligibility may be reviewed each semester based on the individual's employment circumstances.

Career and Full-Time Employees

Full-time employees are not eligible for the student FICA exemption because their services are not considered incidental to pursuing a course of study.

An employee who is regularly scheduled to work 35 or more hours per week is always considered a full-time employee and is therefore ineligible for the exemption.

IRS Resources

• Student FICA exception

This information is provided for general guidance. Eligibility for the Student FICA Exemption is determined in accordance with IRS regulations and University policy.

The following is general information about taxes for graduate students. It is NOT meant to represent advice. For specific questions about your tax responsibilities, please contact the Internal Revenue Service, an accountant, or an income tax service.

At the graduate level, all fellowship and assistantship stipends are considered taxable income by the Internal Revenue Service and by the State of New Jersey. Generally, fellowships do not have tax taken out at the time of payment. Students are expected to report the stipend and taxable income on their tax forms.

Graduate students may exclude from income monies spent for tuition and fees, books, supplies, and equipment required for courses. Tax treatment of specific items may change from year to year. It is important to visit the IRS website for the most recent regulations.

International students may or may not pay taxes on fellowship stipends depending on the specific provisions of the tax treaty between their home country and the United States. Please consult with a tax expert well in advance of the tax due date, which is generally on or around April 15.

Each student is responsible for determining how the tax law applies to his or her own situation. For more information about taxes and links to the Internal Revenue Service, Publication 970. https://www.irs.gov/pub/irs-pdf/p970.pdf

Graduate Assistant

A graduate assistant is a person who serves in a support role (assistantship) at a university, usually while completing post-graduate education. Assistantships provide experience for graduate students, increasing their future employment options.

Fellowship

A fellowship provides financial support to graduate students to pursue graduate studies without associated teaching or research responsibilities (as they are in a teaching or research assistantship). Fellowships are generally merit-based internal or external awards to support a student in a full-time course of study.

Graduate Assistant vs. Fellowship

Most graduate schools will offer both assistantships and fellowships to their students, but it is important to understand the key differences that distinguish these two often confused programs. First of all, fellowships are similar to scholarships in that they are granted to cover student costs, such as tuition, academic fees, housing, textbooks, and other essential supplies. Fellowships are generally sponsored by associations to provide money in exchange for short-term professional development opportunities lasting anywhere from a few months to a couple years in a specific field setting. On the other hand, graduate assistantships offer tuition coverage only for work completed on-campus like a work study program. Assistantships are also considered a salary and will not count as a financial aid award as fellowships do.

Stipend 

This term describes a living allowance and is generally taxable. In no instance is a stipend a payment involving services as it relates to work. Stipends include payments to the student or credits to a student’s account other than those defined as non-taxable fellowships. The credit results in the issuance of a check through Accounts Payable or Payroll. A courtesy letter will be issued to the recipient. The funds may be considered taxable income to the recipient, but are not reported as taxable income by the University on Forms W-2, 1098T, 1042-S (reporting for non-resident aliens, “NRAs”) or 1099-MISC. The University does not provide tax advice, the recipient should consult their tax professional.

Student Refund

This term is used to describe the processing of a payment to a student resulting from a credit balance on the student account. The term is also applied to the payment to the student for Title IV proceeds (SEOG, Pell Grants, and Federal Direct and Perkins loans) in excess of the amount of tuition and fees, room and board, and other authorized charges.

Compensation for Services Related to Work

This category is defined as payments made for teaching, research, and/or other activities performed for the benefit of the University, including activities for the University that may be associated with the student’s course of study and educational experience. Payments received in connection with the performance of service by a student are taxable income and may be subject to federal, state, and FICA tax withholding.

Graduate Assistant Housing

Under Section 119(a) of the Code and Section 1.119-1 of the Treasury Regulations, the subsidized portion of the housing provided by the University is excludable from an employee's gross income if the following three criteria are met:

1. Housing must be furnished for the convenience of the University,
2. The housing must be on the University campus, and
3. The employee must be required to live in University-owned housing as a condition of employment.

The three-part test creates a narrow exception and the Internal Revenue Service has taken a conservative approach to the first and third criteria (relating to the "convenience of the employer" and "condition of employment"). The Tax Department must determine that these three criteria have been met prior to making such representations.

Substantiation

Except in unusual circumstances, the Payroll Department will not exclude the value of University-subsidized housing under the "nontaxable lodging" provision in the code and implement regulations unless the following substantiation requirements are satisfied:

• The residence must be on the University's campus, 
• The written agreement must contain language indicating specifically that (i) the on-campus residence is provided for the convenience of Stockton University and (ii) the employee must accept housing on campus as condition of employment for job-related reasons that are explained in the written agreement, and
• For certain positions when required in the employment agreement the employee must keep a log, notebook, or other form of contemporaneous written record showing, for each instance in which the residence is used for the discharge of job-related obligations: (i) the date and time; (ii) the nature of the meeting or function held at home or the telephone call received at home; (iii) the duration of the meeting, function, or call; (iv) in the case of a meeting or function, the number of people involved and the name of each person (if easily recordable); and (v) any other information supporting the job-related nature of the meeting, function, or call. The log should be retained and available for inspection for seven years.

ASSUMPTION #1

Ed is an employee.

Under Section 119(a) of the Code and Section 1.119‐1 of the Treasury Regulations, the subsidized portion of the housing provided by the University is excludable from an employee’s gross income if the following three criteria are met:

1. Housing must be furnished for the convenience of the University,
2. The housing must be on the University campus, and
3. The employee must be required to live in University‐owned housing as a condition of employment.

This three‐part test creates a narrow exception and the Internal Revenue Service has taken a conservative approach to the first and third criteria (relating to the “convenience of the employer” and “condition of employment”). Both the Tax Department and the Office of General counsel must determine that these three criteria have been met prior to making such representations.

An argument could be made that Ed is providing services to the University and therefore is an employee.  However, it is a stretch to say his arrangement meets the requirement for items 1 and 3, University Presidents/Executive Staff and RA’s only typically meet these two conditions.

Ed’s housing is taxable compensation.

ASSUMPTION #2

Ed is a student.

The types of payment to students fall into one of five categories: scholarships, compensation, reimbursements, prizes and awards, or other.

Amounts excluded from taxable income as qualified tuition and related expenses are limited to the amount used for tuition and fees, books, supplies, and equipment required for courses. These items must be required of all students in a course of instruction for the scholarship or fellowship grant to be tax-free (Prop. Treas. Reg. § 1.117-6(c)(2)).

Non-qualified education expenses include room, board, travel, the cost of optional fees and personal expenses.

No grey area.  Providing free housing to Ed is taxable income to Ed. The IRS does not require the University to report taxable non-qualified scholarships/fellowships on any reporting form (1098T; 1099 or W-2).  A courtesy letter is common practice among universities.  The courtesy letter informs the student of their responsibility to report the taxable income to the IRS when filing Form 1040.

ASSUMPTION #3

Ed is a volunteer.

Per IRS Publication 5137, Section 21 “Fringe Benefits for Volunteers."

Bona fide volunteers who perform services for a government entity are covered by the rules generally applied to employees for fringe benefits.

See Assumption #1 – Housing for Ed would be taxable income for Ed.

Lodging is excludable from wages of the employee if it is provided:

• On the employer's business premises,
• For the employer's convenience, and
• As a condition of employment.

Federal law takes precedence over a state statute, or an employment or union contract, IRC §119.

Courtesy Letter Template

Scholarships, fellowships, and grants may have tax implications depending on how the funds are used.

Amounts used for qualified educational expenses, such as tuition and required fees, may not be taxable. However, amounts used for non-qualified expenses, including room and board, travel, optional equipment, or other personal expenses, may be considered taxable income under federal tax rules.

Students are responsible for determining whether any portion of their scholarships, fellowships, or grants must be reported on their tax returns.

Because individual circumstances vary, Stockton University cannot provide personal tax advice. Students should consult IRS guidance, review IRS Publication 970, Tax Benefits for Education, or seek assistance from a qualified tax professional if they have questions regarding the tax treatment of educational assistance.

Prizes, awards, and certain gifts provided to students by Stockton University may be considered taxable income under Internal Revenue Service  regulations.

Cash awards and cash equivalents, such as gift cards are generally taxable regardless of the amount. Non-cash items may also be taxable depending on the nature and value of the award.

When a prize or award is taxable, Stockton University is required to collect the necessary information and report the payment to the appropriate tax authorities. Students may receive a tax form, such as Form W-2 or Form 1099, depending on the circumstances of the payment.

Students who receive prizes, awards, or gifts from the University should retain documentation related to these items for their records and potential tax filing purposes.