Are College Scholarships Taxable?

You’ve won a scholarship – congratulations! Now you may have a nagging worry in the back of your mind – is this award taxable? In most cases, the answer is, “No, scholarships are not taxable.” However, there are exceptions. Here’s what you need to know about taxes and awards for your educational future.

Are College Scholarships Taxable?

In a majority of situations, scholarships are not considered income, and therefore, are not taxable. Most of these types of awards are specifically for tuition, student fees, books, and required equipment or supplies for your classes. The IRS considers them “qualified education expenses.

So as long as your award is going towards your tuition or similar expenses, you do not need to report the scholarship as income.

Are scholarships taxable income?

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What Are the Exceptions?

There are exceptions to note when it comes to your scholarship money and taxes. As noted earlier, scholarship money is only for those specific expenses. If you use the scholarship money to cover rent, board, utilities, or other costs, this will be considered “income” by the IRS.

For example, if you receive $12,000 for an award, but your tuition, required books, and fees only amount to $10,000, you will have to report and pay taxes on the remaining $2,000.

Other awards require you to complete work as part of the program. If you’re required to be a teaching assistant for a particular award, for instance, any money you receive for this scholarship and work will also be considered taxable.

How Do You Claim Scholarship Income?

If your scholarship money falls under “taxable,” you will have to claim your award money on your next year’s taxes. The award program should provide you with a W-2 detailing the amount of money they sent you. Students in this situation will have to complete Form 1040.

And, if, for some reason, you do not receive a W-2 from the scholarship program, make sure to reach out to them. If you can’t get the form from them, you should still absolutely report the income as failing to do so could land you in hot water with the IRS.

It’s never a bad idea to work with a qualified tax preparer who can help you understand the necessary forms and steps. They’ll be able to answers questions and help you properly report your scholarship award money,

Even if you believe a scholarship will fall under the realm of “taxable,” don’t let that stop you from applying. A small portion of the money may be taxable. But it’s better to have that extra money in hand than not. Planning ahead and setting money aside to cover those tax amounts will keep you from scrambling to raise the cash come tax time next April.

If you’re curious about applying to scholarships, make sure to check out our own awards available to college students.

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