How Do You Know if Scholarship Money Is Taxable

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Taxes for Grads: Do Scholarships Count every bit Taxable Income?

Updated for Tax Twelvemonth 2021 • October 16, 2021 01:02 PM

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OVERVIEW

Heading off to college to augment your horizons is exciting, only funding your instruction via scholarships? That's even amend. Scholarships oftentimes provide a path to education that might not exist viable otherwise, which is why the Internal Revenue Service (IRS) tin can be generous in minimizing students' tax obligations. Merely sometimes scholarship money does count as income, and it's better to find out now if your scholarship adds to your tax liability than to have a surprise later. Hither's how to decode your scholarship taxation.

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Untaxed Scholarship Funds

Most of the time, students working toward degrees at a college, academy, or other accredited educational institution tin avert paying taxes on at to the lowest degree some of their scholarship funds. You generally won't have to pay tax on scholarship coin used to pay for bones expenses related to your education. The IRS calls these "qualified pedagogy expenses."

These expenses include:

• Tuition and student fees
• Also equally books and any required equipment or supplies for your courses

This ways that if your scholarship funds are used to pay for access to classes or for special supplies that your schoolhouse requires you to buy to consummate a class, you likely won't accept to count these funds as income or pay tax on them.

Taxed Scholarship Funds

Some scholarship funds are subject to revenue enhancement, notwithstanding. If you have scholarship money left over after covering your qualified education expenses, you must include that amount as part of your gross taxable income. That ways scholarship money used to pay:

• Rent or board
• Utilities
• And other expenses (including school supplies not listed as required in your program) counts every bit income when calculating your taxation liability

Taxable Stipend Scholarships

In some cases, a scholarship is really more than of a stipend, providing compensation for services while yous're in school or for services you'll provide in the future. If, for instance:

• You receive a $5,000 scholarship with $ane,500 of it designated to pay for your teaching services.
• The $i,500 counts toward your taxable income for the year.
• The remaining $3,500 is usually non taxable, every bit long as you're a degree pupil at a qualifying institution and the money is used for qualified educational activity expenses.

If you receive a scholarship with the condition that you provide services in the future, you'll need to count the scholarship as income in the year yous receive it. Payment for services at a war machine academy also count toward your taxable income.

Claiming Taxable Scholarship Income

If the school considers part of your scholarship as taxable income, you should receive a W-ii from the scholarship'south provider showing the taxable portion in box 1. You can report your taxed scholarship income using Grade 1040.

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The above article is intended to provide generalized fiscal data designed to educate a broad segment of the public; it does non give personalized taxation, investment, legal, or other business organization and professional communication. Earlier taking any action, you should e'er seek the help of a professional person who knows your particular situation for advice on taxes, your investments, the law, or any other concern and professional person matters that affect you and/or your business organization.

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Source: https://turbotax.intuit.com/tax-tips/college-and-education/taxes-for-grads-do-scholarships-count-as-taxable-income/L2hWn0lpe

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