13.01 Introduction to Methods of Student Payments

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Policy Information

Policy Number: 13.01 Effective Date: 8/22/2012
Responsible Unit: Financial Management Last Revised Date: 06/05/2018
Email: FNSV-Financial-Management@arizona.edu Phone: 520-621-3220

Purpose and Summary

To provide guidelines for classifying payments made to students. Many payments to students are commonly referred to as stipends. The term stipend, however, does not provide specific enough guidance to determine the appropriate procedures for processing these payments, or to determine the appropriate IRS reporting and withholding requirements. Therefore, payments must be classified as either scholarships, salaries/wages, consulting fees, or reimbursements.

NOTE: Payments to nonresident aliens are governed by policy 9.16 Payments to Nonresident Aliens, which contains detailed information about payments allowed and documentation required. Refer to policy 9.16 before payment is made to or on behalf of a nonresident alien as some visa types do not allow payments. For additional details on specific situations please contact Tax Services.


26 U.S. Code § 117 - Qualified scholarships


This policy applies to all University locations and units, including all University extensions, satellite locations, and off-site campus units, both domestic and international.  


  1. Clinical Fellow: A person who has received an advanced degree (Ph.D. or equivalent) and/or professional degree in a clinical discipline and is pursuing additional training in research.
  2. Consulting Fees: Payment for services made to independent contractors providing professional advice.
  3. Employer/Employee Relationship: An employer/employee relationship exists when workers’ actions are subject to the direction and control of the University with regard to what will be done and how the work will be done. Some of the characteristics usually implied in an employer/employee relationship are listed below, although none of these characteristics alone determine the relationship:
    1. Permanency of employment
    2. Maintenance of specific work hours
    3. Compensation by the hour, week, month, or year, rather than by the job
    4. The right of the employer or employee to terminate employment without incurring liability
    5. The furnishing of tools, equipment, materials and a place in which to work
  4. Expense Reimbursement: Payment for expenses incurred on behalf of the University. Students can be reimbursed for business or school related activities, however the classification and treatment of reimbursements to students can vary.
  5. External Awards: A UAccess Student function that departments use to award scholarships (awards processed by departments are often referred to as "external awards").
  6. Independent Contractor: Individuals who render a service for the University and meets contractor conditions established by the Internal Revenue Service. They typically have a separate workplace, are not supervised, and have a particular set of skills not available elsewhere within the University. They are not entitled to employee benefits, are not covered by workers' compensation, and their pay is usually not subject to income tax withholding. The University controls and directs only the result of the work the individual must do in exchange for remuneration and not what will be done or how it will be done.
  7. Postdoctoral Fellow: A person professionally working after the completion of their doctoral studies, as a part of a temporary academic appointment, in preparation for an academic faculty position. (See 13.31 Processing Scholarship Awards for Postodoctoral Fellows )
  8. Non-University of Arizona Student: An individual who is participating in study or training at the University who does not have a University Student ID and/or Bursar account.
  9. Salaries/Wages: All remuneration for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash. If salaries/wages are paid to an employee, applicable income and FICA taxes must be withheld.
  10. Scholarships (also known as Fellowships): Generally, an amount paid or allowed to, or for the benefit of, a student at an educational institution to aid in the pursuit of his or her studies. The Internal Revenue Code further indicates that any such payment may not represent compensation for personal services. The regulations regarding scholarships are contained in U.S. Code Title 26 Section 117, which excludes qualified scholarships from salaries/wages. A fellowship grant is generally an amount paid or allowed to an individual for the purpose of study or research.
  11. Service Related Payments: Payments for any teaching or research that is not involved in training is considered service oriented.
  12. Student: An individual enrolled in course(s) for credit.
  13. Student as a Primary Beneficiary: A student is the primary beneficiary if the emphasis of the duties performed is to provide training rather than to render services in return for payment.
  14. Training Related Scholarships: Payments for any teaching or research associated with a training grant. The University believes that Congress did not intend the limitations of U.S. Code Title 26 Section 117 to apply to teaching or research training grants and therefore considers these as scholarships as the student is the primary beneficiary.


The University interprets U.S. Code Title 26 Section 117 regulations as follows:

  1. A scholarship must possess two characteristics:
    1. The student (as opposed to the University) is the primary beneficiary from the activity performed, AND
    2. Teaching, research, or other services cannot be required as a condition to receive payment.
  2. NOTE: Whether a payment is made directly or in the form of a reimbursement for books, supplies, room, board, or travel, it should be treated as a scholarship as long as it meets the above.
  3. If a payment is made to a student who primarily benefits from the teaching or research required for a training grant, then the payment should be treated as a scholarship.
  4. If a service related payment is made to a student who is required to perform teaching or research services as a condition for receiving payment, then the payment should be treated as salaries/wages.


Review the following chart by payment type to determine the payment procedure

Payment Type Payment Procedure

Scholarships/ Fellowships


Consulting Fees

  • Payments for fees made to independent contractors are made through the Requisition or Disbursement Voucher process and are reported to the Internal Revenue Service on Form 1099.
  • Follow 9.12 Independent Contractor Services.
  • If the prospective consultant is a graduate student, be sure to obtain approval from the Graduate College before finalizing an agreement.
  • For non-UA students or students who have graduated, use the Disbursement Voucher


  • For business related expenses, follow 9.10 Requisitions/Reimbursements
  • School related reimbursements are classified as scholarships and are processed through the External Awards system.
  • Travel reimbursements can be either school related or business related, depending on the purpose of the event and the student’s participation in the event.

Frequently Asked Questions

  1. What is an example of when the student is the primary beneficiary?
    If the desired outcome of the project is the training of the individual student, rather than useful results, then the student would be the primary beneficiary.

    Example: If the department could hire another individual at a higher rate than the student to perform the same tasks and not provide training, then the student could be the primary beneficiary.

  2. What is an example of a reimbursable business related expense for a student?
    If the student provides services (such as submittal and/or presentation of a research paper, participation in round table discussions, or sharing knowledge or technology by other means) that primarily benefit the University, the expenses are business related.  Please contact your fund accountant for further clarification related to specific facts and circumstances.

    Example 1: A student travels to attend an academic conference, and presents a research paper on behalf of the University.  As her contribution to the conference is affiliated with the University, she is providing services that primarily benefit the University. Therefore, the expenses are business related. 

    Example 2: An honors student is selected to travel to an academic retreat and will present research from the University at the retreat.  The student is required to stay overnight and will incur travel and lodging expenses.  The retreat activities, travel, and lodging expenses are affiliated with the University and will primarily benefit the University.   Therefore, the expenses are business related.

  3. What is an example of a school related expense for a student?
    If the student does not provide any services, or provides services that primarily benefit the student, then the expenses are school related and should be processed as an award or scholarship. Please contact your fund accountant for further clarification related to specific facts and circumstances.

    Example 1: A student travels to attend a training event, and she presents and participates in the group discussion on the subject matter.  As her participation is primarily for her own training and primarily benefits herself, her travel expenses are school related and must process through the External Awards system.

    Example 2: A student signs up for a class and is required to pay a course fee that is designated for the class field trip which is part of the student’s training. The student then paid for their airfare to attend the field trip and the department chose to reimburse the student’s airfare for the field trip.  The expense primarily benefits the student, therefore the reimbursement must process through the External Awards system.

    Note: A student may have school related and business related expenses for a conference.  Registration fees may be considered a business related expense only if it is a requirement that the student be accompanied by a University faculty/staff and is an enrolled student representing the University.

  4. The University is offering a five week course in California where the student will earn three credits. Can the department pay meal per diem, materials and transportation as a business related expense?
    No, all school related reimbursements are considered scholarships and should be processed through the External Awards system.

Related Information

Departmental Help for Scholarships and Stipends (External Awards)
Office of Scholarships and Financial Aid (OSFA)
9.10 Requisitions/Reimbursements
9.12 Independent Contractor Services
9.16 Payments to Nonresident Aliens
13.10 Student Scholarship Awards
13.31 Processing Scholarship Awards for Postdoctoral Fellows
Human Resources - Compensation
Fund Accountants
Graduate College
Payroll Department Resources

* Please note that sections titled Frequently Asked Questions and Related Information are provided solely for the convenience of users and are not part of the official University policy.