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Is Your College Student’s Scholarship Taxable?

by | Aug 16, 2023 | Tax planning, Taxes | 0 comments

The typical cutoff for undergraduate students to commit to their college of choice is May 1, which means tuition payments are not far behind. Here’s what you should know if your child’s scholarships are taxed.

What Is a “Scholarship?”

First, it’s critical to grasp what a scholarship is. A scholarship is generally defined as an amount provided or permitted to a student at an educational institution for the purpose of study. It may encompass both merit-based and need-based institutional assistance.

Need-based grants (such as Pell Grants or state grants) and Fulbright awards are two more sorts of grants. A fellowship award is often an amount given or granted to an individual for the purpose of study or research.

Fulbright awards can be regarded either scholarship/fellowship income or pay for personal services. If you are a U.S. citizen who has received a Fulbright grant, you must identify which income category your grant belongs into to understand how the award is taxed for U.S. Federal Income Tax reasons.

Tax-Free vs. Taxable

Provided your child wins a scholarship, fellowship award, or other grant, all or a portion of the funds may be tax-free provided certain requirements are met.

Scholarships, fellowship awards, and other grants are tax-free if:

  • The student is a degree candidate at an educational institution that maintains a regular faculty and curriculum and typically has a regularly enrolled body of students in attendance at the location where educational activities are carried out; and
  • The funds received by the student are used to pay for tuition and costs associated with enrollment or attendance at the educational institution, as well as fees, books, supplies, and equipment associated with courses at the educational institution.

However, the student must include the following in his or her gross income:

  • Amounts spent for incidentals like housing and board, travel, student health insurance, and optional equipment.
  • Amounts paid for teaching, research, or other services needed as a condition of obtaining a scholarship or fellowship grant. Students, on the other hand, are exempt from including in their gross income any amounts received for services required by the National Health Service Corps Scholarship Program, the Armed Forces Health Professions Scholarship and Financial Assistance Program, or an extensive student work-learning-service program (as defined in section 448(e) of the Higher Education Act of 1965) conducted by a work college.

Reporting a Taxable Scholarship on Your Tax Return

A student generally reports any amount of a scholarship, fellowship award, or other grant that must be reported in gross income as follows:

  • Insert the taxable part of the total amount stated on the “Wages, salaries, tips” line of the student’s tax return if filing Form 1040 or Form 1040-SR. If the taxable amount was not reported on Form W-2, put “SCH” in the field to the left of the “Wages, salaries, tips” line, along with the taxable amount.
  • Report the taxable amount on the “Scholarship and fellowship grants” line on Form 1040-NR.

Estimated Tax Payments May Be Due

If any portion of a scholarship or fellowship grant is taxable, the student may be required to make anticipated tax payments on the extra income. Publication 505, Tax Withholding and Estimated Tax, contains information on estimated tax.

Please contact if you have any queries regarding whether your college student’s scholarships are taxable.

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