If you've won a scholarship, grant or fellowship, congratulations are in order! You'll surely want to share the great news with Mom, Dad, Grandma...and
Because, your scholarship, grant or fellowship may count as income; and, if so, that means that it's taxable. We've compiled a guide to help you decipher which category your educational award falls under - taxable or tax-free.
Additionally, if your award is taxable, we've included instructions in order to help you figure out how to claim it on your taxes.
Tax-Free Scholarships, Fellowships & Grants
A scholarship is tax-free if:
• You are a full-time 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.
The award is tax-free only as long as you use it for the purposes outlined above.
Taxable Scholarships, Fellowships & Grants
Your scholarship is taxed if it was used to cover any of the following:
• Room and board
• Clerical help
• Fees, Books, Supplies and Equipment (Not required for the course or attendance)
If your award covered both tuition and room and board, the amount you use for tuition is tax-free. However, the amount you used for room and board is taxable. Remember, if you need to make this adjustment, you may have to adjust other parts of your return as well.
For example, if you are filing a deduction for educational expenses, you must reduce the amount of your deduction by the tax-free amount of the award.
Items that are required for your course or for course attendance are generally not taxable.
Making It Legal: Reporting Taxable Awards
If your only income is a tax-free scholarship or fellowship, you're in the clear. You don't have to file a tax return or report the award. However, if all or part of your scholarship is taxable, and if that money is not recorded on your W2 form, you must report it.
To help you figure out the exact amounts that should be reported as taxable and non-taxable of your award, 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
In order to help save time, we've compiled information included within the packet for you. However, if you have additional questions, we suggest you refer to the IRS site before any panic attacks ensue.
: Any tuition reduction that is taxable should be included as wages on your W-2 form.
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 1040 form:
If you file Form 1040, include the taxable amount in the total on the “Wages, salaries and tips” line. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the “Wages, salaries and tips” line.
If you are filing a 1040SR form:
If you file Form 1040SR, include the taxable amount in the total on the “Wages, salaries and tips” line. If the taxable amount was not reported on Form W-2, also enter “SCH” and the taxable amount in the space to the “Wages, salaries and tips” line.
If you are filing a 1040NR form:
If you file Form 1040NR, include the taxable amount in the total on the “Scholarship and fellowship grants” line.
If you're not sure if your award is taxable, ask the organization that sponsored the award. They may have information from the IRS regarding your award's tax status.
If you have questions, ask as soon as possible to get your answers before the end of tax season, when they are likely swamped with questions. You can also seek information directly from the Internal Revenue Service.
Find help understanding education benefits and taxes on the IRS web site detailing ways to contact your local IRS office with questions
. Or find your own answers by checking out the IRS Tax Benefits for Education
, which covers information on education tax benefits.