Paying People at Stanford
|
|
Previously, we discussed Stanford's tax exempt status and how, as a 501(c)(3) tax-exempt charitable organization, the university is generally exempt from taxes on activities that support our mission. However, similar to for-profit companies, the university is subject to applicable taxes and regulations on day-to-day business transactions, such as payroll, independent contractors, and business expenses. Failure to comply with Internal Revenue Service (IRS), state, or local regulations may result in significant penalties to individuals or the university, and reputational risk to the university.
The IRS and other regulatory agencies' rules are complex and transactions occurring in a university setting can take many unique forms. To the extent practical, our financial systems and processes integrate business rules and automate calculations for common recurring compliance regulations, such as payroll related taxes and business expense reimbursements under the Accountable Plan. However, with the wide range of activities that support the university's mission, it is not possible to automate every situation or nuance. For that reason, it is always important to use good judgment and to consult with expert resources on unusual transactions.
This newsletter focuses on general tax compliance considerations and provides a framework for paying individuals, and then dives deeper into several unique higher education activities that we manage, including:
- Payment made as a gesture of goodwill to individuals in appreciation for activities that benefit the university mission (e.g., honoraria)
- Payment to individuals for participating in research studies (e.g., human subjects)
- Payment to visiting scholars or other short-term academic visitors that are conducting activities that primarily further their own academic pursuits
- Reimbursement of business expenses
Based on your feedback, and to help you navigate these situations, we have also updated Fingate materials related to paying individuals: Paying Honoraria, Inviting and Paying Foreign Visitors, and Paying Human Subjects.
Thank you for sharing this information throughout your departments and for the role you play in ensuring the university complies with tax requirements, regulations, policies, and best practices.
|
|
Anne Sweeney-Hoy
Senior Associate Vice President for Finance
|
|
|
|
Paying People: Understanding and applying the framework
|
|
|
Stanford engages and pays thousands of people as part of its day-to-day operations as it carries out its mission of teaching, research, and health care. These individuals include employees, students, postdoctoral scholars, independent contractors (also known as consultants), human subjects, and visitors. Understanding and applying a framework can assist you in identifying the appropriate way to pay these individuals.
|
|
The Framework: Start with "What" and "Who"
|
|
To determine how to pay these individuals, several criteria based on IRS and other regulatory agency guidelines need to be considered together.
In general, these criteria are:
|
|
|
- What the individual is being paid for determines whether the payment is taxable to the individual
- Who is being paid, whether the individual is a university employee or non-employee (e.g., an independent contractor), informs how the payment will be reported to the appropriate tax agencies, if required (e.g., W-2, 1099 etc). This worker classification also has significant liability implications relative to taxes and benefits.
Note: An individual’s U.S. status/tax classification and/or country of residence is also a consideration. Foreign individuals, those that are not U.S. citizens or U.S. residents, are subject to additional immigration and tax regulations. Inviting and Paying Foreign Visitors contains information about these unique requirements, including whether a foreign individual can receive a given type of payment.
Let's take a deeper look into the "What" and "Who" criteria that apply to paying people.
|
|
"What" is the Individual Being Paid for?
|
|
|
The university makes payments to individuals for various activities, including:
|
|
|
- Providing services to the university for a negotiated fee. These agreements are typically documented in a signed contract. Examples include a consultant performing work on a university initiative or a speaker who gives a lecture at the university for an agreed upon fee. See Fingate’s Purchase Services to learn more.
- Participating in activities that support the university mission without negotiated compensation. Providing an honorarium, which is a one-time gratuitous payment or in-kind gift in appreciation, may be appropriate when a guest participates on a panel at the university and the individual does not require a fee, or when an employee speaks to another department about their area of expertise (outside of their typical job duties).
- Participating in research studies or clinical trials. Incentives in the form of monetary payments (cash or check) and in-kind payments (tangible items) can be provided to study participants (e.g., human subjects).
- Making payments to individuals to further their own academic pursuits, and primarily benefiting the individual, such as where individuals use the university facilities and collaborate with others at the university to learn and fulfill their own research or studies. See visiting scholars.
- Traveling on behalf of the university. When an individual is conducting business that benefits the university, such as traveling to a conference to present a paper on behalf of Stanford, those business and travel expenses may be paid for by the university or reimbursed to the individual.
|
|
Here’s an example based on this guidance:
- Albus Dumbledore, an accountant, retires from Stanford. He then changes his mind and wants to return to working two days a week to help with similar work that he did as an employee, but as an independent contractor. Should Dumbledore be compensated as an independent contractor or an employee?
- Answer: Albus Dumbledore should be hired as an employee as the work he is being hired for is similar to his previous employee role. In addition, the university determines when and where to do the work. (See Checklist, Type of Relationship and Behavioral Control).
|
|
Using the Framework: "How" to Pay People
|
|
|
Once you determine "What" the individual is being paid for and "Who" is being paid, you can then determine "How" to pay that person. Below we review how to pay the individual in several different scenarios: honoraria, human subjects, and individuals pursuing their study or research.
|
|
|
While Stanford considers an honorarium as a gratuitous payment, the IRS considers honorarium as a payment for personal services and requires it to be tax reported accordingly. As explained in Paying Honoraria:
- If the honorarium recipient is a Stanford employee (faculty or staff), the payment should be processed through payroll and will be tax reported on the employee’s Form W-2.
- For non-Stanford employees, the payment request should be submitted through the Expense Requests system as a Non-PO Payment and will be tax reported on Forms 1099-NEC/1042-S.
Individuals receiving honoraria may be reimbursed for eligible travel and other business expenses incurred in conjunction with this activity. See discussion below regarding business expense payments.
|
|
|
Paying individuals who participate in research studies (human subjects)
|
|
|
Human subject payments can be made to Stanford employees (faculty or staff) or to individuals who are not Stanford employees. The process for these payments and related tax information differ based on various factors, as explained in Paying Human Subjects.
|
|
|
Payments that primarily support or benefit an individual’s study or research
|
|
Stanford invites visiting scholars or other short-term academic visitors to the university to further their own areas of study or research. Generally, the individual’s activities primarily contribute to their learning and development of the skills needed in the recipient's areas of study or research and the university obtains only peripheral benefit.
In these situations, the university may provide fellowships and/or grants to the individual to support their study and research, such as subsistence or travel payments. These types of payments should be requested through an SU-21 Fellowship/Award Form and are taxable to the recipient. Stanford is not required to report these fellowship amounts for U.S. citizens or U.S. residents for tax purposes on a Form 1099 because the IRS does not consider them to be payment for services. Stanford, however, provides a courtesy letter to the recipient to help them with their tax reporting obligations. Fellowship payments to foreign individuals who are not U.S. citizens or U.S. residents for tax purposes are reported on Form 1042-S.
|
|
|
Payments for Business and Travel Expenses
|
|
As explained in Administrative Guide Memo 5.4.2: Business and Travel Expenses, the university pays expenses directly or reimburses individuals for expenses that are necessary and appropriate to conduct university business. This also applies when employees and non-employees that receive honoraria incur business or travel expenses during the course of conducting that activity. These reimbursements are not tax reportable to the individual when the business expenses are incurred for the primary benefit of the university mission and meet the IRS Accountable Plan rules (it has a business connection and is properly documented; is reasonable and necessary; and is submitted within 60 days after being incurred (e.g., completion of a trip). If these IRS regulations are not followed, the expense must be reported as income to the individual. |
|
|
Time Saving Tip for Visitor Travel Expenses: Digital Payments, an efficient payment method which does not require supplier onboarding, can be used to reimburse domestic visitors for non-tax reportable travel expenses up to the maximum limit, currently $1,000. Learn more about Digital Payments on Fingate.
|
|
|
|
Student Business Expenses
|
|
Graduate or undergraduate matriculated Stanford students may, on occasion, travel or incur expenses in direct support of the university mission and business. Examples include:
- Travel expenses related to presenting a paper at a conference on behalf of a university lab or department
- Expenses required to perform a specific task that is a degree requirement (as certified by a faculty member)
- Expenses incurred when assisting a faculty member in research or presentation
Reimbursements for these expenses require completion of the Student Certificate for Authorized Expenses and, thus, qualify for tax exemption provided in the Accountable Plan rules. This also applies to students who are simultaneously employed by Stanford. All other travel support or reimbursements that do not meet the Student Certification Criteria are considered a fellowship, and should be paid via the Graduate Financial Support (GFS) system.
|
|
|
In which scenario does the university need to report taxable income?
Review the following scenarios and consider if there is reasonable justification to not treat the expense as income.
|
|
|
Four months after returning from a conference, a Stanford faculty member provides the travel receipts to their faculty assistant who completes the reimbursement request. (A: tax reportable; receipts not submitted on time.)
|
|
|
|
In January 2023, a Stanford employee used their department Travel Card to book an airline ticket through Stanford Travel for a conference that occurred in April 2023. The actual trip ended almost 100 days after the ticket was purchased and that end date was updated in the transaction. (A: Not tax reportable; Per Accountable Plan rules, the "clock" only starts once the trip is complete.)
|
|
|
|
Don’t miss out on the latest news, updates, and tools from FMS to help you stay informed.
|
|
|
|
|
|
|
|
