Friday, March 30, 2012

Study Compensation and Tax Law

Participant compensation for clinical research has increased over the past couple of years.  The rising gas prices have been a major burden for clinical trial subjects and sponsors have responded by modifying their clinical trial budgets to cover these costs.  For long-term studies, these payments to participants can quickly add up to total hundreds of dollars in compensation over a period of one year or longer.  Many sites and sponsors have therefore inquired about the reporting requirements that must be documented with the Internal Revenue System (IRS), specifically if they are required to provide the IRS Form 1099 to the subjects for their participation in clinical trials.  The following information was provided by the IRS through their Electronic Tax Law Assistance service.

The following question was provided to the IRS system:  "Must payment to clinical trial participants need to be reported by a clinical trial site on a Form 1099-MISC as nonemployee compensation?"

The IRS provided the following answer:  "You are inquiring as to whether the amounts which you pay to participants in clinical trials need to be reported by you on a Form 1099-MISC as non employee compensation.  In most cases, the answer would be no.  This is similar to the issues as to whether payment received for blood donations is reportable.  There have been several court cases and revenue rulings that have established precedent in this area.  You as the payer, however, may need to determine if the individual to whom funds are paid is engaged in the activity as a trade or business.  This most often occurs if you have individuals who repeatedly are called upon by you during the course of the year to participate in such studies, and whose compensation is such that it would be apparent that the primary motive is for profit.  If, however, you have volunteers who only periodically participate in studies, you are not required to issue a payee document at the end of the year."

For more information regarding study compensation and tax law, visit the IRS website at and review Publication 525, Taxable and Nontaxable income and Publication 533, Self-Employment Tax.

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