Rose-Hulman Institute of Technology
Prizes, Awards, Gifts, and Scholarship Policy
Background:
The Internal Revenue Code states that under certain circumstances the value of prizes and awards/gifts to
individuals is considered taxable income. Non-US citizens may be subject to additional tax rules,
depending on circumstances and treaty status. Historically, the terms “prize” and "award" have been
used by departments for payments distributed to students during the academic year, most notably on
Honors and Awards Day. Unless the student entered and won a judged competition, such payments are
Scholarships, not Prizes.
Definitions
Cash, Prizes, and Awards
 A cash equivalent award/gift is any item which can be used to “purchase” merchandise or which
can be easily converted to cash. Under IRS code, this includes gift cards and gift certificates.
Cash gifts and gift certificates to RHIT employees (including student-employees) are prohibited.
• A de minimis benefit is any property or service provided to an employee that has so little value
that accounting for it would be unreasonable or administratively impractical. Under IRS code,
cash and cash equivalent fringe benefits (i.e. gift cards/certificates), no matter how small, are
never excludable as a de minimis benefit. Examples of de minimis benefits include the following:
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Holiday gifts, other than cash or gift cards/certificates, with a low fair market value.
Occasional meals.
Occasional parties or picnics for employees and their guests.
Occasional tickets for entertainment or sporting events.
Transportation fare.
Occasional personal use of company equipment (at least 85% of its use must be for
business purposes.)
A tangible award/gift is any non-cash item provided to an employee in recognition of
performance or length-of-service. Examples include: flowers, books, trophies, plaques, event
tickets, food, etc.
An award/gift recognizes term of service, exceptional performance, special achievement, etc.
Awards/gifts to students are taxable unless they qualify as scholarships under the Tax-Free
Scholarships and Fellowships section below and are directly applied toward tuition, required fees,
books, and equipment or unless tangible and de minimis.
A prize recognizes performance as part of a judged competition, e.g. best design, highest score,
academic achievement, etc. or winnings from a raffle or drawing. Prizes are taxable unless
tangible and de minimis.
The taxable period is the calendar year, i.e. January 1 through December 31.
Tax-Free Scholarships and Fellowships (from http://www.irs.gov/publications/p970/ch01.html)
A scholarship is tax free provided you are a candidate for a degree at an eligible educational institution,
and you use the scholarship or fellowship to pay qualified education expenses.
Candidate for a degree. You are a candidate for a degree if you:
1. Attend a primary or secondary school or are pursuing a degree at a college or university,
or
2. Attend an accredited educational institution that is authorized to provide:
a. A program that is acceptable for full credit toward a bachelor's or higher degree,
or
b. A program of training to prepare students for gainful employment in a
recognized occupation.
Rose-Hulman Institute of Technology
Prizes, Awards, Gifts, and Scholarship Policy
Page 2 of 2
Eligible educational institution. An eligible educational institution is one that maintains a
regular faculty and curriculum and normally has a regularly enrolled body of students in
attendance at the place where it carries on its educational activities.
Qualified education expenses. For purposes of tax-free scholarships and fellowships, these are
expenses for:
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Tuition and fees required to enroll at or attend an eligible educational institution, and
Course-related expenses, such as fees, books, supplies, and equipment that are required
for the courses at the eligible educational institution. These items must be required of
all students in your course of instruction.
However, in order for these to be qualified education expenses, the terms of the scholarship or
fellowship cannot require that it be used for other purposes, such as room and board, or specify
that it cannot be used for tuition or course-related expenses.
Expenses that do not qualify. Qualified education expenses do not include the cost of:
 Room and board,
 Travel,
 Research,
 Clerical help, or
 Equipment and other expenses that are not required for enrollment in or attendance at an
eligible educational institution.
Policy
Employees (Including student-employees)
 Tangible gifts (bookstore items, turkeys, etc). less than $100 do not have to be reported to payroll.
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Items greater than $100 should be reported to payroll on the Department Prize, Awards, Gifts,
and Scholarship Notification Form.
Awards or gifts to employees, except for length of service, are taxable and must be reported on the
Department Prize, Awards, Gifts, and Scholarship Notification Form.
Cash gifts and gift certificates to RHIT employees (including student-employees) are prohibited.
All scholarships and awards that meet the IRS definition of a Tax-Free Scholarship and
Fellowship must be reported to Financial Aid and included on the student record. Refunds will
be issued through Student Financial Services.
Student-employees are defined as an individual who has worked and received payment from
Rose-Hulman during the current calendar year.
Students/Other Non-Employees:
 All scholarships and awards that meet the IRS definition of a Tax-Free Scholarship and
Fellowship must be reported to Financial Aid and included on the student’s record. Refunds
will be issued through Student Financial Services.
 Awards or prizes to students/other non-employees are taxable and must be reported on the
Department Prize, Awards, Gifts, and Scholarship Notification Form. The gift, prize or award
can be processed without tax withholding but is still considered income. RHIT reports payments
totaling $600 or more in the calendar year as taxable income using Form 1099-MISC.