Situation #1: UH was awarded a federal grant to train governmental entities from a foreign country to operate a cancer research facility. Part of the grant was to pay for travel costs to the U.S. for the international governmental employees. The governmental entity submitted the invoice to UH for travel cost reimbursement. UH was not involved in selecting which employees were sent to Hawaiʻi.
In appreciation for the student’s participation, a $400 stipend will be given to the participants from this “ambassador” scholarship. Also, the student participant can receive a summer tuition stipend of $500 in return for helping give campus tours in the summer and performing other tasks as needed.
Tax Analysis:
There are two stipends here: scholarship of $400 and summer tuition stipend of $500.
Scholarship of $400
Summer Tuition Stipend of $500
Situation #1: UH was awarded a federal grant to train governmental entities from a foreign country to operate a cancer research facility. Part of the grant was to pay for travel costs to the U.S. for the international governmental employees. The governmental entity submitted the invoice to UH for travel cost reimbursement. UH was not involved in selecting which employees were sent to Hawaiʻi.
Situation #2: The University of Michigan signed an agreement to do a joint research project with UH on solar energy. As part of the agreement, UH will pay for the travel costs incurred by the University of Michigan staff.
Situation #3: The Google CEO was the commencement speaker at the UH commencement exercise. UH agreed to pay for the travel costs in addition to the honorarium. The CEO asked UH to reimburse Google for his travel costs.
Tax Analysis
The predominant factor in the tax analysis for the situations described above lies in the determination as to whether the travel costs are business expenses of UH, or a taxable benefit to the travelers.
The travel costs incurred in these hypothetical situations are considered ordinary and necessary business expenses of the University. These travel expenses are an integral part of the operational cost of the University to achieve its business purpose (operating various programs). Furthermore, the travel costs are for the business activities of the University.
Conclusion
For all three situations stated above, the travel costs paid by UH would be considered as business expense and are not income to the travelers.
The Internal Revenue Service requires the University to withhold a certain amount of federal tax for taxable stipends (i.e. non-qualified scholarship or fellowship, cash awards or other taxable income) paid to, or on behalf of, non-resident aliens (NRA). These federal tax withholdings (either 14% for non-qualified scholarship or fellowship or 30% for other taxable income) decrease the stipend amounts and may burden the recipients financially. In addition, payments made to vendors on behalf of the recipients would be short by the tax withholdings.
To make these taxable stipends whole (at 100%), departments at the University may want to provide additional funding to cover the federal tax withholdings. This method of paying for federal tax withholding on behalf of the NRA recipients is called “grossing up”.
“Gross Up” Formula:
Accuracy Verification on “Gross Up” Formula:
“Grossing Up” Example on a taxable scholarship stipend of $1,000 for F-1 student:
Student gets $1,000, and IRS gets $162.79 (credited as tax withholding for the student)
Whenever you receive donations of automobiles, airplanes or boats, please be aware of some specific rules governing these transactions:
University of Hawaii (UH) is considered a governmental tax exempt entity. It is exempt from federal income taxes under Internal Revenue Code (IRC) §115(1). UH is not an IRC §501(c)(3) organization. Contributions to the University are deductible by donors under IRC §170.
Click “here” for copy .
When a department at UH is receiving payment, a Form W-9 may be requested by the payor for UH’s federal identification number. Contact the University Tax Office to prepare and sign this form. Please provide the mailing address of your office and the email address where this signed form will be forwarded to.
No, tax exempt certificate does not provide evidential support of tax exempt status of University (UH). Tax exempt certificate is a document that indicates being exempt from “sales tax” on selling tangible items by the vendors. Whereas, tax exempt status of the University relates to being exempt from “federal income tax” on taxable income of the University. For further explanation to this answer, click HERE for copy of memorandum.
How do I obtain a copy of my 1098-T form?
You can print the form from this MyUH website.
Yes, there are potential tax implications. Qualified campus lodging by IRS definition is “lodging furnished to the university employees, their spouses, or one of their dependents by, or on behalf of, the institution or center for use as a home. The lodging must be located on or near a campus of the educational institution or academic health center.” The federal tax law allows an exemption for the value of qualified campus lodging for amounts in excess of:
LLC stands for Limited Liability Company. It is a form of a business entity that a vendor may have chosen for his or her business.
For tax purposes, a LLC could be treated as a sole proprietor if it has a single member. In contrast, if a LLC has more than one member, then it could elect to be taxed as a corporation, partnership or S corporation.
Fiscal administrators should check for missing information on Form W-9 from vendors who are listed as LLC. The UH Disbursing Office relies on the information from Form W-9 for KFS processing. If Form W-9 is not adequately completed, fiscal administrators should follow up with the LLC vendors on missing information (i.e. missing SSN, FEIN or spelling of vendor name). If there is uncertainty in the KFS vendor setup, information on the completed Form W-9 should be used as the reference source.
Employees receiving cash awards (i.e. excellence in teaching, service awards, etc.) need to be aware of the tax implications to their paycheck.
In general, the cash award is given to the employee before the recording and processing of such amount into the payroll. Because of this subsequent process in payroll, the employee may see a smaller pay check due to the additional increase in taxes withheld in the employee’s paycheck.
Prior to awarding the cash award to the deserving employee, department personnel should inform the prospective awardee that taxes will be withheld in an upcoming paycheck for receipt of cash award and to be aware of any adjustment in their paycheck.
At the end of the tax year, the amount received for these cash award will be reported in the individual’s IRS form W-2 as wages in kind.
In KFS, cash awards should be processed as a Disbursement Voucher (DV) using payment reason code “A” and object code 7244.
If a UH department hires someone who works solely outside of Hawai’i, it is important that the proper tax forms are filed in a timely manner so that no Hawai’i state taxes are withheld for the employee in the payroll process. These forms have to be approved by the Hawai’i Department of Taxation before exempting state tax withholding.
Completed HW-6 and HW-7 forms must be filed with the Hawai’i Department of Taxation. Employees working outside of Hawai’i will need to complete Form HW-6, while department personnel for these employees will need to complete Form HW-7. Once both forms are completed, the departments shall mail both forms to the Hawai’i Department of Taxation.
No, travel costs paid by University of Hawai’i for job interviewees are not taxable.
Pursuant to IRS Revenue Ruling 63-77, reimbursements (to the extent that they do not exceed the actual expenses incurred) made to individuals by a prospective employer like the University of Hawai’i for expenses incurred in connection with the interviews for possible employment are not includible in the gross income of such individuals and are not taxable.
To reimburse interviewees, complete the DISB NE-Inv form (Non-Employee Invoice) and process a purchase order in KFS with the corresponding object codes.
With the implementation of AP 8.561 (Tax Treatment of Non-Service Financial Assistance for Individuals), the University of Hawai’i will no longer be issuing IRS Form 1099-MISC for scholarship / fellowship payment made to U.S. citizens or resident aliens. Although IRS Form 1099-MISC will not be issued to scholarship / fellowship recipients, they are still responsible for self-reporting the amounts received on their individual tax returns. As such, per AP 8.561, each department is responsible for responding to any scholarship / fellowship recipient’s inquiries regarding the amount of financial assistance provided to the recipient.
To assist departments in responding to recipient inquiries, a report has been developed to capture the recipients’ payment information. This procedure will guide you on how to access to the report titled Scholarship / Fellowship Payment Inquiry by Last Name in eThority.
The tax consequences for each UH employee will vary depending on whether the professional development cost for such class is job related or not. If it is job related, then no tax consequences to the UH employee. For further explanation to this answer, click HERE for copy of memorandum.
For contracts with vendors who are state agencies, Hawai‘i Revised Statutes §103-53 (d) (4) specifically exempts certificates of tax clearance on contracts or agreements between government agencies.
M&IE is an acronym for meals and incidental expenses (excluding lodging) as part of the per diem rate annually prescribed by the General Services Administration (GSA) to reimburse employees for business travel. The IRS adopts the GSA per diem rate for tax purposes and as a result, business travel reimbursements or payments for M&IE to employees are not taxable.
However, travel reimbursements or payments for M&IE to students, in most circumstances, are taxable, since the students are not UH employees. These payments often are provided in the form of non-qualified scholarships, awards, or prizes. For specific tax treatments, please refer to AP 8.561, Tax Treatment of Non-Service Financial Assistance for Individuals.
To assist you in obtaining a better tax perspective, the following is a quick summary of various travel reimbursements to various types of payees and its related tax effect:
CSO is a campus-wide student association organized by permission of the chancellor to carry out chartered functions or operations for the purpose of serving the entire student body on its campus and whose activities are financed through mandatory student activity fees. If a travel advance is provided to the CSO student traveler and the advance exceeds the actual costs, then the excess amount may be reported as income to the traveler, unless the excess is returned to UH. The actual travel costs are not taxable to the traveler as it was expended for official business. A CSO is part of the UH’s business, therefore the expenses in these CSO programs should be considered as ordinary and business expenses of the University.
According to the Internal Revenue Code, federal tax law considers the value of prizes, awards and gifts to individuals as taxable income. Merchandise or products won as a prize or award will be considered taxable income at fair market value. If the recipient is a nonresident alien, he or she may be subject to additional tax rules regardless of amount, depending on circumstances and tax treaties.
IRS regulations stipulate that for employees who receive any gift of cash, gift card, gift certificate or cash equivalent, (an item that is easily converted into cash) for reasons related to their employment, such as employee appreciation, service awards, etc., it must be included in the recipient’s gross income since it is considered extra salary or wages, regardless of amount awarded or won. This would also pertain to a tangible award/gift as well, such as a computer, DVD player, etc. The fair market value of that gift would be included in the employee’s gross income as well and reported on their W-2 form. If an employee wins a prize or award/gift for a reason other than related to employment, such as from a contest, program, or raffle that is open to the general public, then the prize and award/gift amount will be treated as 1099 income. The recipient will receive a Form 1099-MISC from UH on any winnings totaling over $600.00 in a calendar year. The recipient will also be required to provide UH with a completed UH WH-1 form, which includes social security number, to be used for issuing a 1099 for tax purposes.
Nonresident aliens (non U.S. Citizens), including international student workers, may be subject to additional tax rules depending on circumstances and treaty status and benefits. Where applicable, taxable income will be reported on Form 1042-S and may be subject to 14% – 30% withholding.
In the subsequent Q&As, scholarship/fellowship will be abbreviated as S/F
Only recipients who are nonresident aliens are required to fill out UH Form WH-1 when receiving non-qualified scholarship or fellowship. However, it is recommended that the Program Office identifies the residency status (i.e. via S/F application) for U.S. citizen, permanent resident, and resident alien, before making a payment. Furthermore, Pacific Islanders (such as residents of Palau, Marshall Island, Federated States of Micronesia, and American Samoa) should also complete U.H. Form WH-1 since they are not U.S. Citizen. For U.S. corporations or U.S. citizen, permanent resident, or resident alien, Form W-9 is also acceptable alternative for initiating payments.
If the student receives federal financial aid, it is preferable to process a nonqualified scholarship or fellowship by U.H.’s Cashier Office or Financial Aid Office through the Banner student information system, which allows the Banner to capture all scholarship and fellowship payments that need to be disclosed to the student payee’s home campus Financial Aid Office as required by federal Title IV regulations. Alternatively, a disbursement voucher (DV) can be processed through the Kuali Financial Systems.
As described, the all-expenses-paid trip is considered a prize that is subject to reporting. However, if participation in the culinary competition was instead a part of the class curriculum as described in the Culinary School’s course catalog, the trip expenses would be a program expense for the class, and would not be considered income to the student selectee. Therefore, it is important to make a link between the payment provided and the academic program, particularly in the event of IRS audit, if the payment is not reportable.
The travel expenses would be treated as a “non-qualified” scholarship for the student, based on the fact that the conference is not a normal, recurring expense of the University, and the student is benefitting from the trip. If the student is a U.S. citizen, permanent resident, or resident alien, the University is not required to report the value of the trip, but the expenses are considered “income” to the student. If student is a nonresident alien, the University is required to report the value of the trip on an IRS Form 1042-S, and tax withholding may also be required. If the student is on an F, J, M or Q visa, the standard withholding rate of 30% is reduced to 14%. The tax withholding amount may also be reduced or eliminated depending on the student’s country’s tax treaty status.
The travel expenses are operational business expenses of the UH Hilo computer science department. To the extent that only actual costs are paid, no IRS reporting is required, and the trip is not considered income to the students.
The costs are considered an operational business expense of the University. To the extent that only actual costs are paid, no IRS reporting is required and the trip is not considered income to the students.
Moot court competitions are a part of the Law School’s curriculum, and the students are educated in classes to compete in moot court competitions. The travel cost is thus an operational business expense for the Law School. To the extent that only actual costs are paid, no IRS reporting is required, and the trip is not considered income to the students.
The travel costs are considered non-qualified S/F expense and constitute a form of financial assistance to the middle school student. However, UH is not required to report on Form 1099-Misc for U.S. Citizen, permanent resident, and resident alien. For nonresident aliens, the amount of the non-S/F expense has to be reported in Form 1042S with proper federal tax withholding.
UH has a Board of Regents policy allowing undocumented alien students to pay in state resident tuition if they meet certain criteria.
http://www.hawaii.edu/policy/?action=viewPolicy&policySection=rp&policyChapter=6&policyNumber=209
As stated in this Board of Regents Policy in the above website, the undocumented students need to establish residency by domiciling and being physically present in Hawaii for 12 months, as per Hawaii Administrative Rules 20-4. Furthermore, the undocumented students also need to attend a public or private high school in the United States for at least three years, and graduated from a public or private high school or attained the equivalent thereof in the United States. Based on those criteria, the undocumented students would have qualified as “resident alien” for tax purposes using the substantial presence test in accordance with Internal Revenue Service. Consequently, the reporting of scholarship or fellowship would be similar as to that of a resident alien.
To determine if a payee is a postdoctoral fellow or postdoctoral associate, the primary deciding factor is the source of funding. If the postdoc is not bringing their own funding as described in the EP 12.227 and is not an employee (scholar), then the payees are postdoctoral associates and they should be coded as such.
Additionally, as specified in AP 8.565, postdoctoral fellows are not doing work on behalf of the University. Whereas, in contrast, postdoctoral associates are doing work on behalf of the University.
Per Merriam-Webster dictionary, definition of stipend is “a fixed sum of money paid periodically for services or to defray expenses”
Are stipends taxable to students?
The word “stipend” is a term used by universities to denote a payment of cash. Unfortunately, the term itself does not characterize the payment for tax purposes. Sometimes a stipend represents wages because the stipend is paid in exchange for the personal services of the payee. Other times a stipend represents a payment in the nature of scholarship or fellowship because it is given for the purpose of aiding the payees to conduct study, training, or research for the classes that the payees are taking. For answers to more common situations involving stipends, please refer to the FAQs in this section.
Stipends can be classified generally into three main categories:
Since this 4-week project is not part of a class and is also not a credit course, the stipends for these students would not be considered a scholarship or fellowship.
For the stipends paid for travel, meals and lodging costs, the value of the stipends would be considered as a prize or award, and would be reported as income on Form 1099-Misc for the recipients. If recipients are nonresident alien, Form 1042-S would be prepared.
In regards to the supplies, since these supplies are used in the project and any excess will be kept by UH, the value of these supplies should be considered as a reimbursement of general program expense. Accordingly, no income would be reported to the recipients.
The dividing line of reportable or not reportable lies in whether the payments are “business expenses” of the University.
For situations involving students in UH organizations, a determination from a business perspective must be made to evaluate if the organization is an integral part of the University.
There are two types of organizations at UH: RIO (registered independent organization) and CSO (chartered student organization).
CSO are integrated into the UH financial budget, whereas, RIO are not.
To be an integral part of the University, one supporting aspect is having budgets set aside in the respective offices of the University for such organizations. All organizations considered CSO would be determined as integral and the stipends would not be taxable to students. For example, student government (i.e. ASUH) would clearly be an integral organization.
If UH Finance Club is a RIO, then payments to such organizations, members or its officers, would not be business expenses of the University. Accordingly, these payments would need to be reported to the IRS. In this case, if $600 or more is spent for an individual during the year, Form 1099-Misc would be reported.
The key factor in determining income or not income to the students is whether attendance at a particular conference is for the student’s benefit or not. If the student is attending the conference to pursue their independent educational activities, as described in the first paragraph, these payments (e.g. allowances or reimbursements) would be classified as scholarship and should be self-reported by the student on their tax return if they are U.S. students. For international students who are still classified as non-resident aliens for tax purposes, such allowances or reimbursements would be reported on Form 1042-S by the University.
If the purpose of the trip is for the student representing UH to fulfill our educational and outreach mission, we then would treat such payments as non-taxable travel reimbursements as part of our accountable plan for business purposes.
U.H. will need to pay a Hawaii tax, “general excise tax”.
No, if vendors’ business does NOT have nexus, U.H. should not pay general excise tax. Vendors will have nexus in Hawaii if they have property in Hawaii (also affiliate offices), provide services in Hawaii or having business representatives in Hawaii.
Yes, type in name of vendor in Hawaii Department of Taxation’s website and see if a general excise tax license numbers is found. The website for such a search is “https://dotax.ehawaii.gov/tls/app “
Yes, please click here
Purchasing from vendors outside of Hawaii has changed with the Supreme Court’s decision in South Dakota v. Wayfair, Inc.
Pursuant to Announcement No. 2018-10, vendors (taxpayers) will be required to pass on general excise tax and pay such tax to the State of Hawaii, if any of the following applies:
Instead of using the physical presence test (i.e. offices in Hawaii, representatives working in Hawaii, etc.), economic presence is now used as the required factor for vendors to pass on general excise tax in their sales to UH.
A vendor is asking for UH general excise tax number. Where can I find it?
UH does not have a general excise tax number as UH is not required to pay general excise tax on its revenue. UH is a state governmental instrumentality and exempt from paying general excise tax on its revenue.
A college or university is generally deemed to have UBI when it realizes gross income from any regularly conducted trade or business that is not substantially related to its educational and other exempt purposes. Specifically, UBI exists only if ALL of the following qualities are met:
If rental only involves space within a facility (usage of the area), the rental income will be excluded from UBI. However, UBI may exist if:
When equipment (i.e. furniture, audio-visual equipment, etc.) is part of the rental of the facility, the tax considerations are different if the rental value of equipment is equal to:
Scenario 1: Rental of space on a campus building or freestanding tower to a third-party for placement of cellular transmission equipment, i.e. University allows a third party to place its tower on University real estate, (either ground or existing building).
Determination: Income is considered tax exempt rent from real property and is not unrelated business income.
Scenario 2: Rental of antenna space on a tower owned by the University (permanently affixed to either the ground or an existing building).
Determination: The rental of antenna space on the tower is not eligible for the rental exclusion. Towers are treated as tangible personal property rather than real property. As a result, the income is unrelated business income.