Interns’ and graduate assistants’ stipends currently are being taxed according to USNH-wide policy regarding taxation of assistantships. “…all stipends paid to graduate assistants are fully taxable and will be reported on form W-2 as compensation for services performed.”
Graduate assistants are not being taxed on their tuition benefit nor, in the case of those who have it, on their room, board and insurance. We can justify the exclusion for the tuition benefit per Ken Cody’s 1988 research at least in the academic departments. In Durham they determined the stipend which is taxed was “reasonable compensation for services” and that the additional tuition benefit was eligible for exclusion from tax as a “qualified scholarship.”
Below is a summary of the regulations on meal and lodging taxability. In the past we have always used “for the employer’s convenience” as the reason to exclude taxes on room and board but in becoming more familiar with language of the regulations, it may be hard to justify this application.
Per Ken Cody’s December 7, 1988 memo on taxation of students and employees:
Employer-provided meals and lodging that are part of an employee’s compensation are taxable fringe benefits. Meals and lodging provided in kind for the convenience of the employer and on the employer’s premises are excludable from the employee’s income and exempt from employment taxes.
Lodging provided by the employer is a taxable benefit unless three conditions are met:
- the lodging must be on the employer’s business premises;
- the lodging must be furnished for the convenience of the employer; and
- the employee must accept the lodging as a condition of employment.
“For the convenience of the employer” means the lodging provided is for a “substantial non-compensatory business reasons.” The condition-of-employment standard necessitates more than a mere requirement by the employer that the employee accept lodging provided. It must be shown that proper performance of job duties compels the employee to live on-site.
In order to be excluded from employee’s income meals must be furnished in kind, for the employer’s convenience, and on the employer’s premises. Payment-in-kind means the employer must supply actual meals, not just groceries or a meal allowance. If the employee has the option of receiving additional compensation in lieu of meals, the value of the meals is taxable.
Meals must be furnished on the employer’s premises, not merely nearby. To satisfy this requirement, the meals must be provided at a place where the employees perform a significant portion of their business.
In order to be considered as furnished for the employer’s convenience, meals must be provided for “substantial non-compensatory business reasons.” If meals are intended as part of the employee’s compensation, to attract employees, or good will, they will be treated as taxable. Examples of non-compensatory business reasons include:
- Employees must remain available for emergencies or to deal with customers during their meal breaks;
- Employees are permitted only a short meal period and could not reasonably be expected to obtain a meal elsewhere in the amount of time allowed.