The Big Questions About Scholarship Taxability

Should I Claim Scholarships & Other Awards On My Taxes?

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You must meet all the other criteria, however. The first qualifying rule for a tax-free scholarship involves where you’ll be attending school. You must use the money to go to what the IRS refers to as an “eligible educational institution.” Scholarships and grants often aren’t taxable. That’s good news when the school of your dreams is giving you some financial aid, but you could end up having to pay something to the IRS, depending on how much you receive and how you spend it.

What part of my scholarship award is taxable?

The answer depends on a number of factors. File with a tax pro At an office, at home, or both, we’ll do the work. Residents are subject to country-specific restrictions.

The net result is a tax benefit of $440 compared with the original return. However, taxpayers in states with an income tax may find the increased state tax outweighs the benefits of pursuing this strategy for the lifetime learning credit.

Federal School Code

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  • The college applied the scholarships and grants against qualified tuition and related expenses.
  • The granting department is responsible for correctly determining the amount, which should be classified as a stipend, but such determination is always subject to review and reclassification by the Tax Department.
  • Recipients of taxable scholarships, grants, fellowships and tuition waivers during the tax year are required to report the taxable portion on their federal income tax returns.
  • Finding your taxable income is an important part of filing taxes.
  • The Edstimate® is Edmit’s best estimate of the price you’ll pay for a college.

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Scholarships From Schools

Mark Kantrowitz is an expert on student financial aid, scholarships, 529 plans, and student loans. He has been quoted in more than 10,000 newspaper and magazine articles about college admissions and financial aid. Mark has written for the New York Times, Wall Street Journal, Washington Post, Reuters, U.S. News & World Report, MarketWatch, Money Magazine, Forbes, Newsweek, and Time.

Should I Claim Scholarships & Other Awards On My Taxes?

Since its money you’ll need to pay back, the amount isn’t included in income. If you’re currently paying back your student loans, you may qualify for the student loan interest deduction. Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circumstances.

How to Report Taxable Scholarships on Your Tax Return

The lifetime learning credit (“LLC” in the accompanying tables) offers a credit for 20% of up to $10,000 in qualified education expenses. Thus, a maximum credit of $2,000 is available to qualifying students.

  • One state program can be downloaded at no additional cost from within the program.
  • The number and amount of taxable scholarships reported on federal income tax returns has grown significantly in recent years.
  • A scholarship is a kind of financial aid that you don’t have to pay back.
  • Your school will send you a 1098-T form detailing what financial aid was applied to your tuition, including all scholarships and grants.
  • If you receive private scholarships that can be used for living expenses, let your college financial aid office know.

Scholarship money is generally tax-free provided the student is a candidate for a degree at an eligible institution and the money is used to pay for qualified expenses. Tuition money spent on required equipment, books, and supplies is tax-free. “Required” means that your school or class instructor says that you must have these items to enroll in and attend a particular class. You’d have to pay taxes on a portion of the scholarship if you were to use some of that money to purchase a new laptop that isn’t required, even though you might use it for schooling. If the school considers part of your scholarship as taxable income, you should receive a W-2 from the scholarship’s provider showing the taxable portion in box 1. You can report your taxed scholarship income using Form 1040. The remaining $3,500 is usually not taxable, as long as you’re a degree student at a qualifying institution and the money is used for qualified education expenses.

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This approach increased the couple’s overall tax refund by $937. Notice this strategy would have a negative effect if used to claim the lifetime learning credit (see the “LLC” column in the same table). But, sometimes you will need to modify this figure. For example, some colleges report only tuition and fees in Box 1 and don’t report course materials. Or they may report an average figure or an allowance for course materials. If your actual spending on required textbooks, supplies and equipment is higher, keep receipts and base the calculation of the taxable portion of your scholarships, grants and fellowships on the actual qualified tuition and related expenses.

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Should I Claim Scholarships & Other Awards On My Taxes?

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