Are scholarships considered taxable income?
- Scholarships are one of the best forms of financial aid available – you won’t have to pay them back.
- Generally, scholarships are not considered income, so you will not pay tax on the money you receive.
- Stock market money is considered taxable if you use it to pay for board and lodging.
- Learn more about Insider’s student loan coverage here.
Scholarships are one of the best forms of financial assistance you can get. You don’t need to pay them back, and you can avoid taking on more expensive aids like loans. But is there “free” money – or will you pay part of your purse in taxes? It depends.
The Internal Revenue Service, or IRS, has guidelines for tax rules on the payment of scholarships.
What is a scholarship?
A scholarship is a kind of financial aid that you don’t have to repay. You may be able to get scholarships from schools, employers, individuals, businesses, community organizations, etc.
The scholarships will reduce your academic expenses and the prices vary in value. You could receive a few hundred dollars or the full cost of participation – it all depends on the terms of the scholarship.
You may need to meet specific requirements while studying to keep your scholarships. This may include maintaining a minimum GPA, playing on a sports team, assisting a teacher, or working a specific number of hours.
What are the tax rules on stock exchanges?
Generally, scholarships are not considered income, so you will not pay tax on the scholarships you receive. However, there are a few rules:
- You must be pursuing studies at an eligible university institution.
- You must use the money for qualifying expenses, including tuition and fees, books, and course or diploma-related costs (like course supplies).
Money is not tax exempt if:
- You use it to pay for other college-related costs, such as room, meals, and travel.
- The money is given as compensation for teaching or other work (as a teaching assistant, for example).
These guidelines apply to all scholarships, grants and scholarships. Also, if you receive a scholarship and are not in a degree program, that money is taxable.
Examples of taxable or non-taxable scholarships
For example, if you received a scholarship of $ 10,000, put $ 8,000 for tuition and $ 2,000 for accommodation and meals, that $ 2,000 would be counted as taxable income.
Or let’s say you’re a graduate student earning $ 25,000 to be a teacher’s assistant – all that money would be considered taxable income and you would receive a W-2 form from the school.
Your school will send you a Form 1098-T (likely in January) detailing what financial aid has been applied to your tuition, including all scholarships and grants. You can use this form when filing your taxes to find out how much you owe the IRS.
Overall, most scholarships are tax free, although it depends on how you use the money.