Are college scholarships taxable?
You have won a scholarship – congratulations! Now you might have a nagging question on your mind – is this award taxable? In most cases, the answer is “No, scholarships are not taxable.” However, there are exceptions. What you need to know about taxes and awards for your future education.
Are college scholarships taxable?
In most cases, salaries are not considered income, and therefore are not taxable. Most of these types of awards are specifically for tuition, student fees, books, and supplies or equipment for your classes. The IRS considers them “educational expenses.”
As long as your award is directed toward your tuition or similar expenses, you will not need to report the scholarship as income.
What are the exceptions?
There are exceptions when it comes to your grant money and taxes. As mentioned earlier, grant money is only for these specific expenditures. If you use the grant money to cover rent, food, utilities, or other expenses, it will be considered “income” by the IRS.
For example, if you receive $12,000 for an award, but tuition, required books, and fees do not exceed $10,000, you must report and pay taxes on the remaining $2,000.
Other awards require you to complete work as part of the program. If you are required to be a teaching assistant for a particular award, for example, any money you receive for that scholarship and work will also be considered taxable.
How do you claim grant proceeds?
If your grant amount falls under “Taxable,” you will need to claim your grant amount on next year’s taxes. The award program will provide you with a W-2 form detailing the amount they sent you. In this case, students must complete Form 1040.
And if, for some reason, you don’t get a W-2 from the scholarship program, be sure to reach out to them. If you can’t get the form from them, you must report the entire income because failure to do so could lead you into hot water with the IRS.
It is never a good idea to work with a certified tax preparer who can help you understand the forms and steps needed. They will be able to answer questions and help you correctly report the scholarship amount.
Even if you think the scholarship will fall under the “taxable” field, don’t let that stop you from applying. A small portion of the amount may be subject to tax. But it’s better than not having extra cash on hand. Planning ahead and allocating money to cover those tax bills will keep you from scrambling for cash at tax time next April.
If you want to learn how to apply for a scholarship, be sure to check out our awards for college students.
