PURDUE UNIVERSITY
OFFICE OF THE BUSINESS MANAGER AND ASSISTANT TREASURER
WEST LAFAYETTE, INDIANA 47907

To: Administrative Officers and Heads of Departments

Re: BUSINESS OFFICE MEMORANDUM NO. 11

Withholding of Federal Income Tax from Fellowship Stipends

For the information of those directly concerned with the establishment and supervision of fellowships, the following explanation of our policy with respect to withholding from fellowship stipends is set forth.

In determining whether funds should or should not be withheld in a particular instance, the decision is based solely on whether or not there exists a real or an implied employer-employee relationship between the University and the recipient of the fellowship award. No attempt is made to evaluate the effect of differences between profit and non-profit donor organizations or the effect of differing requirements of donor organizations on the tax liability of the recipient. The determination of tax liability is exclusively a matter between the individual and the Federal Government. The University is concerned solely with its legal obligations to withhold.

If the individual performs services for the primary benefit of the University (academic and other requirements applying to all students are excluded from consideration), the employer-employee relationship is clearly established and funds must be withheld.

If there is no clear-cut employer-employee relationship established on the basis of services performed, but there is an implied relationship of this kind, funds must be withheld against a possible tax liability. The implied relationship exists when staff privileges are extended to the recipients of fellowship awards and when fellowship appointments and payments are handled in our personnel and accounting records on the same basis as staff appointments and payments.

If no definite or implied employer-employee relationship exists, funds are not withheld, but a report of the payment of the stipend is made to the Federal Government so that between the individual and the Collector of Internal Revenue the final determination of tax liability can be made.

R. W. Kettler
Business Manager and
Comptroller