Are you or your child receiving scholarships for attending a college or university? College can be expensive, and most students rely on some sort of assistance to afford higher education. This assistance can come in several different forms; need-based grants, government grants, school scholarships, outside scholarships and other types of grants. Now receiving assistance can be confusing for students, especially when it comes to the tax implications. Here’s what you need to know when it comes to scholarships and taxes.
A general rule is that if you are seeking a degree and you are using the funds from the scholarships or grants for “qualified education expenses”, you won’t have to pay taxes on the funds you receive. What qualifies for these expenses? Any funds you use to pay for your school’s tuition, required school fees, and books or supplies that are required for a course. It’s important to note that this does not include room, board or utilities. Those are not qualified education expenses. To qualify for the degree part, you must be a degree candidate at an educational institution that maintains a regular faculty and curriculum. So, if you use all the funds you receive from a grant or scholarship on your tuition and books and you are working towards a degree, you won’t have to worry about claiming or paying taxes on that income you received.
But, unfortunately, there’s always a but. If you receive a large sum of funds via scholarships and grants and you have money left over after paying your qualified education expenses, that money is considered taxable income. As stated earlier, any funds that go towards your room, board and utilities are taxable. Any money you use for college expenses outside of the required supplies for your education is taxable. Keep in mind that any scholarships or grants you receive as payment for teaching, research or other services that are required, are considered taxable.
If you do need to claim some of your scholarship or grant funds, you can claim that on your federal tax return when you file in April. You will likely receive a W2 from the sources of your scholarship or grant so you have that information when you file. You can learn more about including your scholarship funds on your tax return, here.
