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With the rising cost of college, many families are in search of scholarships to help pay the bills. If your child is awarded a scholarship, you may wonder about how it could affect your family\u2019s taxes. Good news: Scholarships (and fellowships) are generally tax-free for students at elementary, middle and high schools, as well as those attending college, graduate school or an accredited vocational school. It doesn\u2019t matter if the scholarship makes a direct payment to the individual or reduces tuition.<\/p>\n
Requirements for tax-free treatment<\/strong><\/p>\n Despite this generally favorable treatment, scholarships aren\u2019t always<\/em> tax-free. Certain requirements must be met. A scholarship is tax-free only if it\u2019s used to pay for:<\/p>\n For example, expenses that don\u2019t qualify include the cost of room and board, travel, research and clerical help.<\/p>\n A scholarship award is taxable to the extent it isn\u2019t used for qualifying items. The recipient is responsible for establishing how much of an award is used to pay for tuition and eligible expenses. Therefore, you should maintain records (such as copies of bills, receipts and cancelled checks) that reflect the use of the scholarship money.<\/p>\n Taxable and nontaxable amounts<\/strong><\/p>\n Subject to limited exceptions, a scholarship isn\u2019t tax-free if the payments are linked to services that your child performs as a condition for receiving the award, even if the services are required of all degree candidates. Therefore, a stipend your child receives for required teaching, research or other services is taxable, even if the child uses the money for tuition or related expenses.<\/p>\n What if you, or a family member, are an employee of an educational institution that provides reduced or free tuition? A reduction in tuition provided to you, your spouse or your dependents by the school at which you work isn\u2019t included in your income and isn\u2019t subject to tax.<\/p>\n Payments reported and not reported on tax returns<\/strong><\/p>\n If a scholarship is tax-free and your child has no other income, the award doesn\u2019t have to be reported on a tax return. However, any portion of an award that\u2019s taxable as payment for services is treated as wages. Estimated tax payments may have to be made if the payor doesn\u2019t withhold enough tax. Your child should receive a Form W-2 showing the amount of these \u201cwages\u201d and the amount of tax withheld, and any portion of the award that\u2019s taxable must be reported, even if no Form W-2 is received.<\/p>\n These are just the basic rules. Other rules and limitations may apply. For example, if your child\u2019s scholarship is taxable, it may limit other higher education tax benefits to which you or your child are entitled. Contact us if you wish to discuss these or other tax matters further.<\/p>\n \u00a9 2023<\/em><\/p>\n <\/body> With the rising cost of college, many families are in search of scholarships to help pay the bills. If your child is awarded a scholarship, you may wonder about how it could affect your family\u2019s taxes. Good news: Scholarships (and fellowships) are generally tax-free for students at elementary, middle and high schools, as well as […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,6,10],"tags":[8,11,12],"class_list":["post-16734","post","type-post","status-publish","format-standard","hentry","category-articles","category-individual-tax","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16734","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16734"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16734\/revisions"}],"predecessor-version":[{"id":16735,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16734\/revisions\/16735"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16734"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16734"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16734"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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