Sponsored Programs Administration

Distinguishing between Stipends and Salaries/Wages

Comparison

Stipend Salaries & Wages
Financial assistance or support paid to university students; no work assigned. Compensation for performance of assigned work.
No scope of work. Scope of work assigned.
No UC Patent Agreement. UC Patent Agreement signed.
No Workers' Compensation coverage. Workers' Compensation coverage.
No required fringe benefits or remissions. Applicable UC employee fringe benefits and Tuition and Fee Remission as appropriate based on eligibility.
Student-mentor relationship; no employer-employee relationship. Employer-employee relationship.
No grant and contract support unless the purpose of the award is to provide fellowship or scholarship. Can be paid from grant and contract funds, and other internal funding sources.
Pay at the beginning of the quarter. No obligation to perform any assigned tasks or specific projects. Pay based upon hours or percentage of time worked performing assigned job specific duties.
Selection based upon University policies that determine student's financial need or merit through competition. Selection by the individual Principal Investigator or Lead Researcher based on competency, skills, knowledge, and ability and coordinated with Human Resources.
Disbursed by Graduate Division. When supported by extramural awards made to UCR, administered jointly by Sponsored Programs Administration, Contract and Grant Accounting and the responsible school or department. Salary/wages disbursed by Payroll. When supported by extramural awards made to UCR, requires additional coordination with Sponsored Programs Administration and Contract and Grant Accounting.
Amounts based upon reasonable need or stipend limits set by the sponsor of the training or fellowship grant. Amounts restricted by University salary scales.

References

UC C&G Manual, 8-515

Scholarships and fellowships are defined as financial aid paid directly to University students as scholarships, fellowships, stipends, or dependent allowances. This category does not include any disbursement of salaries and wages or honoraria.

UC C&G Manual, 7-217

Salaries and wages charged to sponsored agreements are paid for services of University employees rendered to the project during the period of performance of the particular agreement. All such payments must be made through University payroll procedures. Vacation, holiday, sick leave pay and other paid absences are included in salaries and wages and are charged to Sponsored Programs as part of the normal charge for salaries and wages.

UC Accounting Manual, Section T-182-77

Describes definitions and general rules for scholarships and fellowships, and taxation of both.

OMB Circular A-21, J.41. Scholarships and student aid costs

a. Costs of scholarships, fellowships, and other programs of student aid are allowable only when the purpose of the sponsored agreement is to provide training to selected participants and the charge is approved by the sponsoring agency. However, tuition remission and other forms of compensation paid as, or in lieu of, wages to students performing necessary work are allowable provided that (1) there is a bona fide employer-employee relationship between the student and the institution for the work performed, (2) the tuition or other payments are reasonable compensation for the work performed and are conditioned explicitly upon the performance of necessary work, and (3) it is the institution's practice to similarly compensate students in nonsponsored as well as sponsored activities.

IRS Publication 520 (Scholarships and Fellowships)

Wages and other compensation paid to a nonresident alien for services performed as an employee are usually subject to graduated withholding at the same rates as resident aliens and U.S. citizens. Therefore, your compensation, unless it is specifically excluded from the term "wages" by law, or is exempt from tax by treaty, is subject to graduated withholding. . .

If you work as an employee in the United States, you must pay social security and Medicare taxes in most cases. Your payments of these taxes contribute to your coverage under the U.S. social security system. Social security coverage provides retirement benefits and medical insurance (Medicare) benefits to individuals who meet certain eligibility requirements...All taxable wages are subject to Medicare tax...Your employer must deduct these taxes even if you do not expect to qualify for social security or Medicare benefits. You can claim a credit for excess social security tax on your income tax return if you have more than one employer and the amount deducted from your combined wages for 1999 is more than $4,501.20.

IRS Code, Title 26, Section 1.117-3, Computation of Taxable Income

Scholarship. A scholarship generally means an amount paid or allowed to, or for the benefit of, a student, whether an undergraduate or a graduate, to aid such individual in pursuing his studies. Fellowship grant. A fellowship grant generally means an amount paid or allowed to, or for the benefit of, an individual to aid him in the pursuit of study or research.

And Section 1.117-4

The following payments or allowances shall not be considered to be amounts received as a scholarship or a fellowship grant for the purpose of section 117: . . . (c) Amounts paid as compensation for services or primarily for the benefit of the grantor. (1) Except as provided in paragraph (a) of Secs. 1.117-2 and 1.117-5, any amount paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research, if such amount represents either compensation for past, present, or future employment services or represents payment for services which are subject to the direction or supervision of the grantor. (2) Any amount paid or allowed to, or on behalf of, an individual to enable him to pursue studies or research primarily for the benefit of the grantor.