Prize Vs. Scholarship
December 21,2011
CATS Meeting
Topics
 Definitions
 IU Policy
 Financial Aid Implications
 Tax Implications
Definitions
 Scholarship/Fellowship
 Unrestricted, non-service related funding for the purpose of
aiding undergraduate/graduate students’ study, training or
research.
 Synonyms include grant, award, stipend, etc.
Information from IUB CATS Financial Aid Guidelines
 An amount paid for the benefit of a student at an educational
institution to aid in the pursuit of study or research.
Information from IRS Publication 970
Definitions
 Prize
 Include cash, cash-equivalents (such as gift cards), tangible
personal property, and complimentary services.
Information from IUB PolicyVII-4
 Payment won in a contest that does not have to be used for
educational expenses.
Information from IRS Publication 970
Definitions
 Estimated Financial Assistance (EFA)
 Includes any education benefits paid because of enrollment in
postsecondary education and/or paid during enrollment term.
 Includes assistance from federal programs, schools, and private
external individuals or organizations.
 Examples include
 Scholarships/Fellowships
 Employer reimbursement of employee’s tuition
 Tuition and fee waivers
 Need-based employment
Information from U.S. Department of Education Student Aid Handbook
http://ifap.ed.gov/fsahandbook/attachments/1011FSAHbkVol3Master.pdf
Definitions
 What constitutes a prize?
 Recipient is not required to be a student.
 Recipient is not required to use funding for educational
purposes.
 The contest is not related to the student’s coursework,
university studies, or degree completion.
 If any of the above do NOT apply to the contest payment, the
funding is considered a scholarship and should be processed
through the SIS.
IU Policy
Activity:
Prizes and Awards – 4866
Financial Policy:
Related Policies:
N/A
http://www.indiana.edu/~vpcfo/policies/other/home.html; http://www.indiana.edu/~vpcfo/policies/other/vii-4.html.docx
Additional Forms:
http://www.indiana.edu/~cats/presentations/2006/SUPPORTING%20FORM%20WHEN%20USING%20FIS%20DV%20FOR%20STUDENTS_06_26_2006.doc
Things to know:
Prizes and Awards – 4866:
The IRS considers payments or winnings intended for the purpose of aiding a student’s study, training, or research as scholarships or fellowships. Payments or winnings won in
a contest are considered a scholarship, if any of the following conditions apply:

The recipient is required to use the disbursement for educational purposes.

The recipient has to be a student to win the prize.

The contest is related to the student’s university courses or degree completion.
Payment from a contest that can only be used when enrolled as a degree candidate at an educational institution is considered a scholarship. For example, a competition is held
and prizes for 1st, 2nd, and 3rd places are awarded to students who must use the competition prize for their education. In this instance, the competition “prize” would be
considered a scholarship and should be processed through the SIS.
Payment from a contest in which only students are eligible and the criteria for judging are measures of excellence based on university studies or academic performance is
classified as a scholarship. As an example, the competition payment in this instance would be considered a scholarship and should be processed through the SIS.
The determination of whether payment from a contest that is classified as a scholarship and processed through SIS is taxable income to the recipient will have to be made by the
recipient. If the payment from a contest is not classified as a scholarship, the prize would be includable as taxable income to the recipient.
If the payment does not meet any of the conditions mentioned above, the payment or winnings would be considered a prize by IRS definition and not a scholarship. A prize
would have to be process in one of two manners to ensure appropriate reporting by the university. If the contest prize is a cash payment, it will need to be processed through FIS
DV. Please note, documentation on how the prize contest was conducted should be entered into the DV notes section. For further questions regarding processing awards
through FIS DV, please contact Rozzie Gerstman at 855-1123.
If the contest prize consists of a non-cash item, please refer to Indiana University Fiscal Policy VII-4 for processing guidance. Some examples of non-cash item are cash
equivalents such as gift cards, tangible personal property, and complimentary services. For further questions regarding Indiana University Fiscal Policy VII-4 and the Prize Tax
Data Collection Form, please contact FMS Tax Department at [email protected].
Financial Aid Implications
 Post in SIS if funding…
 Is intended to support a student’s educational expenses.
 Educational expenses included in a student’s cost of attendance (COA)
include but are not limited to tuition, fees, room & board, books, local
transportation, personal expenses, research, training, or Overseas Study
costs.
 Is paid because of enrollment in postsecondary education.
 Enrollment may include past, present, or future terms depending upon
the intention of the funding.
 Is won in a contest where criteria for winning is a measure of
excellence based on university studies, academic performance,
or degree completion.
Financial Aid Implications
 FA Compliance
 A scholarship is always considered EFA. Post scholarships
through the SIS.
 A prize is not considered EFA. Prizes can be awarded via DV.
 Err on the side of caution (EFA) for federal financial aid
compliance.
Financial Aid Implications
 Overaward (applies only to students receiving Title IV federal aid)
 Student can only receive total aid (including EFA) up to
financial need or COA.
 Federal or campus-based aid may have to be reduced to make
room for additional scholarships.
 Student loan debt will likely be decreased
 Student will not necessarily receive cash-in-hand if any bursar
charges are unpaid.
 Access to SIS entry may be closed for the academic year.
 Contact [email protected].
Tax Implications
 Scholarship
 Reported on Form 1098-T by IU.
 A scholarship is taxable if…
 The recipient is not a degree candidate at an eligible education institution,
or
 The amount paid exceeds the student’s qualified educational expenses
(i.e. tuition, fees, and course-related expenses, such as fees, books,
supplies, etc.).
 Prize
 Reported on Form 1099-MISC by IU if over $600
 A prize is fully taxable income to the recipient, even if it is
under the $600 Form 1099-MISC reporting threshold.
Resources
IRS Publication 970
 http://www.irs.gov/publications/p970/
IUB CATS Financial Aid Guidelines
 http://www.indiana.edu/~cats/kb/d_f.php
IUB Financial Aid website
 http://www.iub.edu/~sfa/
IUB PolicyVII-4
 http://www.indiana.edu/~vpcfo/policies/other/home.html
U.S. Department of Education Student Aid Handbook
 http://ifap.ed.gov/fsahandbook/attachments/1011FSAHbkVol3Master.pdf
Questions?
Contact Information
Alison Baum
Associate Director, Scholarships and Grants
Office of Student Financial Assistance
Scholarship questions: [email protected]
Wendy Dion, 855-6359
Tax questions: [email protected]