Scholarships can drastically change your financial circumstances. It's free money for college you don't have to pay back. One day you don’t have the money you need to pay for college, and the next day, you do.
But what happens after you’ve won a scholarship? Who do you inform of your scholarship? What happens to your financial aid package once you’ve won? Is scholarship money considered income? Does it require you to pay income taxes on the scholarship?
So many high school students, college and graduate students focus on how to win college scholarships
but very few know what to do with them after the fact.
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What To Do After You’ve Won a Scholarship
After you’ve won a scholarship, you need to take care of a few housekeeping items before asking is your scholarship money considered income. First, you need to notify your college that you’ve won an outside scholarship. An outside scholarship is an award distributed by any organization other than the school to which you’ve applied. This is necessary so that the school can adjust your financial aid package.
Adjusting your financial aid package is not meant to penalize you. In fact, this process works to your benefit. The first thing eliminated from the financial aid package would be student loans. Student loans require you to pay them back with interest after graduation. The less student debt you have after college, the better for your life in general.
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After you’ve arranged everything with your college, you need to consider your taxes. Some scholarship money is considered income, and you need to treat them as such.
To start, you need to identify which type of scholarship you have. A tax-free scholarship fits the following requirements:
• You are a full- or part-time candidate for a degree at a primary, secondary or accredited post-secondary institution.
• The award covers tuition and fees to enroll in or attend an educational institution.
• The award covers fees, books, supplies and equipment required for your courses.
To ask yourself is your scholarship money considered income, it would have to cover one of the educational related expenses below:
• Room and board
• Travel to and from school
• Clerical help
• Fees, books, supplies and equipment (that are not required for courses)
This could get a little complicated. For instance, you may be awarded a scholarship that covers both tuition and room and board. The component of the award that covers tuition is tax free while the part of the scholarship that covers room and board is taxable.
Tax Forms: Is Scholarship Money Considered Income?
When reporting your scholarship money as income, you need to utilize the correct forms and follow the right protocol. To help you figure out the exact amounts that should be reported as a taxable scholarship
, check out the IRS site section on tax benefits for education, where they have implemented an interactive tool to discover whether you’re eligible to claim an education credit.
Here's a quick guide detailing how to report your scholarship, fellowship or grant income depending on which return form you are filing:
If you are filing a 1040EZ form:
If you file Form 1040EZ, include the taxable amount in the total on line 1. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 1.
If you are filing a 1040 form:
If you file Form 1040, include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount on the dotted line next to line 7.
If you are filing a 1040A form:
If you file Form 1040A, include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the left of line 7.
Winning Scholarships: Is Scholarship Money Considered Income?
Don’t let the process of reporting and filing taxes scare you away from searching for and winning scholarships. Winning any scholarships – whether considered income or not or taxable or not – is well worth the work it takes to follow protocol.
You can find scholarships by setting up a profile on Fastweb. We take the search out of scholarship search for our users. In setting up the profile, we ask questions about location, colleges of interest, GPA and test scores, and extracurricular activities. You also have the option to include your place of employment, parents’ places of employment and organizations or affiliations you may have as well.
We ask all of these questions not to pry into your family life but to find scholarship opportunities for which you would qualify. The more you tell us, the better we’ll be able to match you to scholarships.
As a rule of thumb, you need to treat applying to scholarships as a full-time job. Work on scholarship applications for a few hours each week, committing to applying to two or three awards at a time. Apply to a mix of scholarships as well. There are those scholarship applications that are easy to apply to, sometimes only requiring your contact information. Other times, scholarships need more components like an essay or video application. Though these may require more work, they will likely have a smaller applicant pool.
Finally, keep in mind that winning scholarships is a numbers game. The more you apply to, the greater you chances of actually winning.
If Scholarship Money is Considered Income
As you apply for scholarships and ask is scholarship money considered income, keep in mind that winning can sometimes require a little work after the fact. You need to contact the college where you plan to use the scholarship money to determine whether or not the award is considered income. If it is considered income, you need to compile that information on the right tax form.
Don’t let the hard work after the fact keep you from applying to scholarships, though. Every dollar you win is a dollar less that you’ll have to borrow in order to pay for college. Winning scholarships is well worth the work. Get started now – fill out a profile on Fastweb.