The Tax Implications of Clinical Trial Payments
After Mural Health and WCG co-hosted a webinar in February called “Demystifying Participant Payment Myths,” we received dozens of questions from attendees about the nuances of clinical trial payments and how to approach them. Sam Whitaker, CEO of Mural Health, and Kelly FitzGerald, IRB Executive Chair and VP of IBC Affairs at WCG, addressed some during the session, but the conversation is far from over.
This is undoubtedly a complex topic and the many questions we received is the impetus behind this multi-part blog series which aims to answer lingering questions about the key aspects of clinical trial payments. If you haven’t seen the earlier parts of this series, we recommend giving them a read.
Here’s what we’ve covered so far:
Part I: The Ethics of Clinical Trial Payments (and Non-Payments) highlights the best practices for navigating fair and transparent management of payments.
Part II: A Deep Dive Into Clinical Trial Payment Types, Methods, and Amounts sheds light on details like what expenses to cover, how much to pay participants, and what payment methods to offer.
In Part III we’ll cover the tax component of trial payments: what is taxed, how can you minimize tax exposure, and why this matters for recruitment and retention.
Tax Implications of Clinical Trial Payments — Key Principles
As we’ve covered in Parts 1 and 2, clinical trial payments to participants can come in different forms. At their broadest, payments are typically classified as reimbursements or stipends. Each of these types has its own set of tax implications that are worth understanding for how they impact sites, sponsors, and CROs — but also participants. The key principle to remember is this: reimbursements are the only form of payment currently not considered taxable income and should be prioritized in the pursuit to make participants “financially whole.”
What does this mean? Making a participant “financially whole” means making every effort to ensure they are fairly and fully compensated for their engagement in your clinical trials. This includes reimbursement for all out-of-pocket expenses and reasonable payment that considers the true time and cost to participate (e.g. lost wages, childcare, etc.). You should always first focus on fully reimbursing participants. It’s an area the industry hasn’t gotten quite right, yet it’s one that can have a monumental impact on clinical trial engagement.
The problem starts here: all payments beyond reimbursements and direct payments of trial-related expenses are considered taxable income and must be reported to the IRS. The reporting of additional income threatens to disqualify some patients who rely on benefits from social welfare programs, from receiving these benefits.
This is among the persistent barriers keeping ~100 million Americans from participating in clinical trials, many of whom are from populations that are already grossly underrepresented in medical research.
Many in the industry are working hard to change this. In 2024, Mural Health introduced The Harley Jacobsen Act to Congress that would exclude all payments to all clinical trial participants and caregivers from being treated as taxable income. This bill was recently reintroduced, but until it’s passed, it’s important that you understand the tax implications of clinical trial payments and your options for paying your participants fairly.
A Deeper Dive — Q&A
What tax reporting is required for payments to clinical trial participants, and who is responsible for reporting?
In the U.S., all clinical trial payments that are considered to be taxable income are subject to tax reporting. This means that clinical trial participants — the payees — are obligated to report the income they receive in a trial as part of their personal tax return (regardless of the amount).
When the taxable income paid to a participant meets or exceeds $600 in a calendar year, the trial payor (the entity closest to the clinical trial payments, such as the trial site, Mural Health, the sponsor, or other) is required to issue a 1099 form to both the IRS for federal income reporting, and to the receiving participant to be reported on their personal tax return. If the site has paid the participant, the site must issue the 1099. If the sponsor makes the payment directly, it’s their responsibility.
It should be noted that following the “One Big Beautiful Bill” being signed into law, the $600 threshold for issuing a 1099 will increase from $600 to $2,000, starting on January 1, 2026. This amount will be adjusted annually for inflation. For more on this topic and its impact on trial payments, see our recent blog.
What are the tax implications of different types of clinical trial payments to participants?
How clinical trial payments are classified determines whether or not there are tax implications, what those implications are, and who’s impacted by them. Here is a breakdown of the main types:
{{tax-table="/drafts/components"}}
As shown above, reimbursements are not considered taxable income and do not need to be reported. In contrast, every single dollar a participant receives in the form of a stipend is to be reported by participants and taxed.
Sites or sponsors will sometimes choose to offer flat-rate stipends over reimbursement to avoid managing the variances in expenses and the administrative effort of collecting receipts. While we understand that practice is less burdensome for the payors, the tax implications of stipends can be quite burdensome for patients. For some, it may be the reason they drop out or don’t participate at all. A better practice is to prioritize reimbursements, setting and disclosing limitations if needed.
Does the IRB view flat stipends as a participant-friendly form of payment? Are there concerns about fairness and regulatory compliance when replacing reimbursements with stipends?
Because stipends are considered taxable income, it’s not considered participant-friendly to offer them in lieu of reimbursement. While the practice is regulatorily compliant, it’s more burdensome for participants overall. Stipends don’t always cover the true cost of out-of-pocket expenses incurred by patients throughout their participation and they come with tax burdens. To effectively and more easily manage a reimbursement program, our recommendation is to seek out systems and solutions that can help alleviate the burden, with tools that streamline expense tracking and payment options that accommodate participant preferences.
How should a site handle reimbursement to a patient that does not have a tax ID number?
In the U.S., a payor only needs to collect tax identity information, such as a Social Security Number (SSN), Employer Identification Number (EIN), or Individual Taxpayer Identification Number (ITIN), if they anticipate tax reporting requirements and the issuance of 1099 forms. If you’re only providing reimbursement, or are providing stipends in an amount that is below the reporting threshold in a calendar year, it is not required to collect the tax identification numbers of participants.
If a participant is unable or unwilling to provide a TIN, the payor can still pay the individual but, in order to be compliant with tax rules, should withhold 24% of the gross amount. The withheld tax must then be deposited by the payor to the IRS.
How should we handle stipends that may affect the eligibility of a participant receiving welfare benefits?
Clinical trial participants who receive government assistance have income amounts they cannot exceed in order to remain eligible to receive that assistance. Since clinical trial stipend payments are considered taxable income, receiving them could mean risking the eligibility of the government assistance these patients rely on. This is a key factor for one-third of Americans, who will likely not participate or drop out if they’re asked for their tax information — but this can be avoided.
As we mentioned in Part 2, when building your payment structure, you should first cover all relevant expenses in the form of direct payments (at no out-of-pocket cost to the participant), or reimbursements.
Consider offering stipends only:
- After all reasonable expenses have been reimbursed to the participant: A stipend should never be considered a replacement for a reimbursement.
- When providing financial incentive: As stipends are taxable income, they should only be used when providing incentive or compensation for a financial loss that would otherwise also be taxable, such as lost wages or childcare.
- On an opt-in basis: Because stipends can be detrimental to a participant at risk of losing their social benefits, the option to decline should be offered.
It’s also considered appropriate to connect any participant that may need financial support to a resource that can help fund their participation in a clinical trial, such as nonprofit organizations, donation platforms like gofundme.com, and advocacy groups that can provide assistance.
Can participants choose to waive any payment beyond $599 to avoid reporting their earnings?
Before we answer this question, we must first clarify that all amounts which represent determinable income are taxable by the IRS, even income below the $600 (soon-to-be $2,000) threshold. The threshold is what triggers the requirement for the payor to issue a 1099. Every dollar up to and beyond the threshold is still required to be reported by the recipient on their personal tax return.
That being said, a participant can choose to waive stipends that exceed $599 in a calendar year, to avoid receiving a 1099. While they’re technically required to report any income on their personal tax return, they may not, operating under the incorrect assumption that they aren’t required to. Unfortunately, that assumption leads to participation dropout or decline. If they have to report it, they don’t want it. It’s this sentiment that reinforces the importance of making participants “financially whole” through direct payments and reimbursements.
Should tax implications of payments be outlined in participant consent forms? If so, how?
Clearly defining and communicating clinical trial payments and reimbursements in consent forms is vital for setting expectations and ensuring participants understand the process. To do so, provide comprehensive details of what expenses can be reimbursed and make note of any limits or restrictions. If other forms of payment like stipends are to be issued, those will also need to be described.
While there is no regulatory requirement to disclose tax implications of payments to participants, it’s certainly a good practice. This does not only benefit the participant, but also the sponsor and site, as it reduces the risk of tax-related drop-out.
What are the tax implications of travel reimbursements? Are they considered taxable income?
In most cases, travel reimbursements are not considered taxable income. These expenses can include the cost of flights, hotel accommodations, car services, gas mileage, parking, etc. To be reimbursed, participants are typically required to submit the receipts for such expenses (or attest to them, in the case of mileage), which are then processed and paid by the site or sponsor.
As mentioned earlier, a site or sponsor can streamline their travel reimbursement process by booking and paying for transport or lodging directly through a participant management platform. This enables participants to travel without the worry of out-of-pocket expenses. It also removes the administrative effort of managing receipts and processing reimbursements.
Wrapping Up & Looking Ahead
The tax implications of clinical trial payments may not be something that sites, sponsors, or CROs contemplate often, but they do have a real impact on how participants engage with your clinical trials, and as a result, on the overall outcome of your research. If you have more questions or want to connect with our team about this and other topics related to clinical trial payments, contact us here.
Coming up, in Part 4 of this series, we’re answering your questions about payment methods and the options available beyond prepaid cards.
