Employee Dependent Scholarship Program

Purpose

To recognize and financially support academically strong students who are dependent children of employees, through competitive scholarship awards.

Eligibility

Eligible children are natural or legally adopted dependent children of:

• an eligible active employee, or the employee's spouse (if dependent on the employee);
• an eligible retired employee, under the same terms;
• a deceased employee who had a minimum period of continuous service (for example, five years), if the child was dependent on the employee at the time of death;
• a deceased retired employee, if the child was dependent at the time of death.

Program structure

The company may sponsor scholarship competitions through independent, outside scholarship-administration organizations, which typically handle candidate evaluation, selection, and award administration on the company's behalf. A typical program includes two tracks:

Tax-qualification safeguards (required)

For scholarship awards under a program like this to be excludable from the employee-parent's income as a scholarship under IRC Section 117 — rather than being treated as additional taxable compensation to the employee — the program must be structured to meet the IRS safe-harbor conditions in Revenue Procedure 76-47 (as clarified by Revenue Procedure 85-51), which remains the current controlling IRS guidance for employer-related scholarship programs. At a minimum, the program (typically administered through the outside scholarship administrator) must:

• Use an independent selection committee. Recipients must be selected by a committee made up entirely of individuals who are genuinely independent of, and have no ties to, the company or the administering organization (a former employee of either does not count as independent). The company may only verify that eligibility requirements and selection criteria were followed — it may not influence individual selections, and any public announcement of awards must come from the committee or administrator, not the company.
• Apply objective, nondiscriminatory selection criteria. Selection must be based solely on objective standards unrelated to the parent's employment or the company's line of business — for example, academic performance, standardized test results, financial need, or independent recommendations — not on the employee's position, performance, or duties.
• Not condition awards on continued employment or future service. A grant may not be terminated, and renewal may not be denied, because the parent-employee leaves the company after the award is made, and there must be no expressed or implied expectation that the employee will render future service in exchange for the award.
• Not exceed the award-volume safe harbor. Awards to employees' children in any year should not exceed 25% of eligible applicants (children who applied and were considered by the committee) or 10% of all eligible children (whether or not they applied), whichever test the program uses. Exceeding both percentage thresholds does not automatically make awards taxable, but shifts the analysis to a facts-and-circumstances test of whether the program's primary purpose is employee compensation rather than education — a materially less certain position than staying within the safe harbor.
• Not use the program to recruit or retain employees, and impose no more than a reasonable minimum-service eligibility requirement (no more than three years of employment, under the safe harbor).

If these safeguards are not followed, scholarship amounts may be treated as taxable income to the parent-employee rather than a tax-free scholarship to the child. Confirm the administering organization's selection process actually satisfies these conditions — do not assume that using an "independent" outside administrator alone is sufficient without confirming committee composition and selection criteria.

College scholarship track

• Open to eligible dependent children planning to enroll full-time as undergraduates.
• Selection is typically based on a standardized qualifying test taken during high school (for example, in the junior year) plus a program entry form.
• Awards are usually a set annual stipend within a defined range (for example, in the low thousands of dollars per year), sized to education costs and family circumstances, and generally continue for up to four years or through completion of the undergraduate degree, whichever comes first.

Vocational/technical scholarship track

• Open to eligible dependent children planning to enroll in an accredited vocational or technical program (typically up to two years), rather than a four-year degree program.
• Selection is generally based on the student's stated career goals, academic transcript, extracurricular activities, work experience, and school recommendations, rather than a standardized qualifying test.
• Awards are typically smaller in size than the college track and are based on program cost and individual need.
• An award may be withdrawn if the recipient does not pursue the vocational/technical program as planned.

General terms

• Only one scholarship award per eligible child per program cycle.
• Awards are not retroactive and cannot be applied to already-completed terms.
• Eligible children of employees at U.S. territories/possessions may have additional conditions (for example, attending a qualifying institution in the mainland U.S.) where the sponsoring organization requires it.

Responsibilities

Role	Responsibility
Employee/Family	Obtains and files the required entry form(s) by the applicable deadline.
HR / Employee Services	Provides entry forms and general program information.
Outside Scholarship Administrator	Handles candidate evaluation, selection, and award administration independently of the company.