700.1 - Honoraria
An honorarium is a payment made to an individual, usually for providing a service such as a lecture or a music performance, for which no specific fees were required or requested by the individual. See Section 300 for additional information on honoraria. Also see section 700.3 below for situations where the individual requests an honorarium be paid to a third party.
700.2 - Severance Payments
Employees whose employment with the University ends may receive severance-related payments in certain circumstances. These payments are considered taxable income to the former employee [1]. Such payments are considered to be wages, thus subject to income tax and FICA withholdings. [2] The former employee will receive a Form W-2, which will contain both pre-termination wages and the severance payment.
700.3 - Assignment of Income
In some cases, an employee or honorarium recipient may request that an amount due to him/her be paid instead to a third party (such as a University department or a charitable organization). Under the tax rules governing assignment of income, this amount is still considered to be taxable income to the employee or recipient. [3] The amount will be reflected on the employee's Form W-2, and is subject to applicable income tax withholding. If the amount of an honorarium exceeds $600, the recipient will receive a Form 1099-MISC.
When assignment of income results in taxable income, the employee or recipient may be able to claim a charitable contribution deduction on his/her tax return.
700.4 - Commissions
Certain University employees may receive commissions on advertising sales, corporate sponsorships or other donations solicited, etc. In most cases, these sales and the related commissions may cover an extended period of time, or may be billed over an extended period. Typically, commissions are paid to the employee when the billed amounts are collected. These commissions are considered to be taxable wages, and are subject to applicable employment taxes.
If an individual leaves the employ of the University while amounts are still being billed and collected by the University, the commissions on those collections are usually still due to the now-former employee. Because the underlying event giving rise to the commission (i.e., the sale) took place when the individual was still a University employee, the commissions are still considered wages, and are paid through payroll in order to withhold applicable taxes.
Notes:
[1] Treasury Regulation Sec. 1.61-2(a)(1)
[2] IRS Revenue Ruling 2004-110, 2004-50 IRB 960
[3] IRS Revenue Ruling 74-32, 1974-1 CB 22
The WUTH is presented here in HTML format. Click on the links in the link box on the right to go to a specific section of the handbook. A printable version of the handbook in PDF format will be forthcoming in the future. Significant portions of the WUTH are adapted from The Texas A&M University System Tax Manual, the nonresident alien tax websites of Towson University, Cornell University, and The University of Missouri, and information provided by Arctic International LLC.