Human subjects are individuals who participate in research studies. Specific factors such as the amount and type of payee determine how human subjects can be compensated and the corresponding tax implications of those payments. This page provides an overview of the roles and responsibilities related to paying human subjects, best practices to protect privacy, payment methods by incentive type, and tax information for human subjects.
|Research study administrators||
Research study administrators assume fiduciary responsibility to ensure proper accounting for funds spent on studies conducted at Stanford. Adequate controls must be in place for the distribution of the funds and costs must be allocated to the correct charge account (PTA, or project, task, award).
When a third-party (non-Stanford) entity is administering the study, the research administrator must submit a contract request to Procurement Services to ensure appropriate consideration of data use and HIPAA compliance. Refer to Topic Overview: Contracts for more information on the contracts process at Stanford. If the study is a clinical trial, contract the Clinical Trials Research Management Group for more information.
Faculty members also need to ensure that approved research protocols for the use of human and animal subjects in research are obtained and followed. The overall responsibility for management of a sponsored project within funding limitations rests with the principal investigator. Visit the DoResearch website for more information.
All personnel working with human subjects on a research project must complete an instructional program related to the protection of human subjects. An award will not be made unless the training is completed regardless of the source of funding for the project.
|Departments and Unit Finance Managers||It is the responsibility of financial managers, officers, and deans to periodically advise faculty and staff of requirements. Dean’s offices should properly advise new employees of this guidance and any related local policies and procedures.|
While all individuals involved in financial transactions play an important role in stewarding university assets, department approvers play a critical role in ensuring the university’s funds are paid both timely and appropriately. Refer to Topic Overview: Financial Transaction Approval for more information on the roles and responsibilities of approvers.
For transactions specifically related to human subjects, approvers must ensure that the required documentation is included with the transaction (see Payment Methods by Incentive and Payee Type section below) and that all data related to the human subject is de-identified in the business purpose of the transaction (see Protecting Participants’ Privacy section below).
|Purchaser of incentives||The purchaser of the incentives should not be a participant in the human subject study and must follow university policies and procedures to appropriately prepare and complete the transaction.|
Human subjects are protected under California state laws and federal Health Insurance Portability and Accountability Act (HIPAA) regulations. As a result of these requirements, study administrators must follow certain business processes to protect the privacy of the participants.
Only the following authorized individuals can view Human Subject Expense Request transactions:
- The preparer
- Transaction approvers
- Individuals with authority over accounts charged
- Authorized staff in central administrative units
Many studies are sensitive in nature and information concerning human subjects is confidential. To maintain anonymity, in the business purpose of the transaction, use a generic statement such as “human subject payment” and the study protocol number rather than the subject’s name or the name of the study. The first 30 characters of the business purpose appear in reports for the designated project, task, and award. For more examples, refer to Resource: Guidelines for Writing a Clear Business Purpose.
This guidance is meant for payments to human subjects and covers the varying payment methods that are used depending on the purpose of the payment, the type of payee, and the dollar amount.
In-Kind Payment (Tangible Items)
In-kind payments are non-cash, tangible items (e.g., Stanford-branded merchandise) and can be provided to human subjects. This type of incentive is an alternative option and has a lower risk for fraud and administrative burden. They are also especially useful for individuals who may not wish to share Social Security numbers. IRS treats payments of in-kind items as taxable income to the recipients, meaning recipients are responsible for their tax reporting obligations to the IRS.
Tangible items provided as in-kind payments valued at $200 or more are not recommended. In these situations, utilize a non-PO payment through the Expense Requests system to facilitate appropriate tax withholding.
- Tax implications differ when providing a tangible item as an in-kind payment versus a gift, for example, to employees for service milestones or other occasions. Refer to Topic Overview: Categories of Purchases for more information on gifts.
- Gift cards are considered cash equivalent, and thus cannot be treated as non-cash (see guidance in section below).
|Purchase Process for Non-Cash In-Kind Payments (Tangible Items)||Tax Implications||Documentation Requirements|
The tangible items are purchased with a Stanford Purchasing Card.
||Research study administrators must complete and retain a copy of the Human Subject Incentive Certification Form as well as attaching a copy to the reimbursement transaction, PCard verification, or when clearing the advance. They should keep record in the department, of:
The tangible items are purchased by a Stanford employee with their personal funds and then they are reimbursed through an Expense Request report to the SU Payee.
Note: The amount requested for an advance must be spent or returned to the university within four (4) months (120 days).
Monetary (cash or check)
Monetary incentives may be used for human subjects, but the process varies depending on the type of human subject. Proper cash stewardship and accounting requires recording expenditures and making payments only through established methods.
Monetary incentives valued at $200 or more for non-employees should be processed through a non-PO payment through the Expense Requests system to facilitate appropriate tax withholding.
|Type of Human Subject||Purchase or Payment Process||Tax Implications|
|Stanford employees||Departments should contact their HR administrator to request a one-time or supplemental payment (using earn code ‘OTH'), which would be added to the employee’s next scheduled paycheck.||The payment is tax reportable and will be added to the employee’s Form W-2 at year end. See tax information in the section below.|
Prior to distribution to the human subjects, cash must be appropriately secured, tracked, and periodically audited by an employee other than the primary administrator of the cash.
Study administrators must complete and retain a copy of the Human Subject Incentive Certification Form, as well as attach a copy to the transaction when clearing the advance. They should keep record in the department of:
All payments to human subject participants are taxable to the recipient. Stanford may not issue a tax form for payments under a certain threshold, but recipients are responsible for their tax reporting obligations to the IRS. See tax information in the section below.
Withholding does not apply to U.S. residents.
Note: Depending upon the visa status of the recipient, the individual may not be able to accept payments from a U.S. source, such as the university, and/or the university may not be able to make payments to accounts based on the individual's country of residence. Learn more about Inviting and Paying Foreign Visitors.
|The payment is tax reportable, with varying implications dependent upon factors such as amounts and payee country/state residency. See tax information in the section below.|
Gift cards may be used as incentives for any type of human subject, including Stanford employees.
Gift cards valued at $200 or more should not be provided. Instead, utilize a non-PO payment through the Expense Requests system to facilitate appropriate tax withholding.
|Purchase or Payment Process||Tax Implications||Documentation Requirements|
Refer to Topic Overview: Categories of Purchases for guidance on purchasing gift cards.
All gift cards are considered cash equivalent. Purchase orders can be used to buy gift cards for research and human subject studies. When purchased in bulk in advance of distribution, they should be treated like cash and appropriately secured, tracked, and periodically audited by an employee other than the primary administrator of the cards.
All payments, including gift cards, to human subject participants are taxable to the recipient. Stanford may not issue a tax form for payments under a certain threshold, but recipients are responsible for their tax reporting obligations to the IRS. See tax information in the section below.
The reimbursement, PCard transaction verification, or advance clearing must be completed within 60 days, or it may be taxable to the purchaser of the gift cards.
Research study administrators must complete and retain a copy of the Human Subject Incentive Certification Form, as well as attach a copy to the transaction. They should keep records in the department, of:
Human subject payments and in-kind items beyond nominal value are tax reportable as income with varying implications that depend on factors such as amounts, payee country/state residency, and location of activity (such as where the study was conducted, for example, within or outside the U.S.).
- Federal Tax:
- U.S. resident payees: There is no federal tax withholding on a payment to an individual not employed by Stanford if a Tax ID Number (TIN) is on file with Stanford at the time of payment. Stanford will issue an IRS Form 1099-MISC for total payments that equal $600 or more in a calendar year. For employees, it is taxable as wages through Payroll and reported on Form W-2.
- Non-U.S. resident payees: Stanford is required to withhold from "U.S. source" income payments made to non-U.S. payees at the rate of 30%. Stanford will issue an IRS Form 1042-S for total payments regardless of the total amount in a calendar year. Note: It is important to indicate in the transaction or supporting documentation the location of the activity (such as where the study was conducted, for example, within or outside the U.S.).
- California State Tax: Non-residents of California who participate in a study as a human subject are subject to California withholding at a rate of 7% for payments over $1,500 in a calendar year. Stanford will provide CA Form 592-B to payees, which shows the total amount withheld and reported for the tax year. For more information, refer to withholding on non-residents on the State of California Franchise Tax Board website. Note that this state tax may be assessed in addition to federal tax, which would total to 37% in those cases.
Option to “gross up” payment
In certain situations, departments have the option, at their discretion and depending on department budgetary limits, to increase the monetary incentive amount to the payee in order to factor in the amount of taxes that will be withheld. Gross-up payments should be considered carefully, as a gross-up payment will result in an additional expense for the department, and potentially, the payee will receive the funds in the form of a tax refund when they file their required year end tax return. In these cases, the amount that will be tax reportable to the individual is the total gross-up amount paid. A payment may be taxed at either the federal or state level, or both, depending on the amount and the U.S. residency of the payee.
|Example: The intended monetary incentive is $100. The expected federal tax is 30%, and there is no state tax.|
|Without gross up||If the incentive payment is $100, and is taxed at 30% for a non-U.S. payee, the payee receives $70.|
|Example: The intended monetary payment is $2,000. In the applicable rows below, the expected federal tax is 30% and/or the state tax is 7%.|
|Federal gross up||
Formula: [Net Amount / (1 – Tax Rate)] = Gross-up
The department may elect to pay $2,857.14. The 30% withholding equals $857.14, leaving $2,000 “net amount” remaining for the payee.
Example: [$2,000 / (1-.30)] = $2,857.14 (the total amount tax reportable and charged to the department)
|State gross up||
Formula: [Net Amount / (1 – Tax Rate)] = Gross-up
The department may elect to pay $2,150.54. The 7% withholding equals $150.54, leaving $2,000 “net amount” remaining for the payee.
Example: [$2,000/(1-.07)] = $2,150.54 (the total amount tax reportable and charged to the department)
|Federal and State gross up||
Formula: Gross-up = [Net Amount / (1 – Tax Rate)]
The department may elect to pay $3,174.60. The 30% and 7% withholding equals $1,174.60, leaving $2,000 “net amount” remaining for the payee.
Example: [$2,000/(1-.37)] = $3,174.60 (the total amount tax reportable and charged to the department)