TUCSON, Ariz. (13 News) – The 13 News Fact Finders heard from a parent wondering if scholarships are taxable. We checked with the University of Arizona, the IRS, and Intuit to get the answer.
The key term here is “qualified educational costs.”
You may have heard this term in conjunction with a college savings account. Financial Services at the University of Arizona says, “In general, scholarships used to pay for tuition are not considered taxable and do not need to be reported on a tax return. However, any awards exceeding your qualified educational expenses may be considered taxable income and need to be reported.”
Here are the specific conditions required by the IRS in order to not be taxed:
You must be a degree-seeking candidate attending a qualified education institution: a primary or secondary school or college.
The money cannot exceed your qualified education expenses – generally, tuition and fees required to attend.
Scholarship money counts as taxable income when it’s used to pay for room and board, utilities, or things like school supplies that aren’t required.
When a scholarship is really more of a stipend – you can be taxed on the portion of that money allotted as compensation for services.
Grants are a form of financial aid that does not require repayment, Like a Pell grant. These work in a similar way to scholarships.
So – the key to figuring this out – is to ask yourself or your student if any money was spent on non-qualified, educational expenses.
There are also tax credits available, to cut down on any tax bill you do have for money related to school.
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