Introduction | Do You Owe Taxes on Your Scholarships?
If you have received financial aid to fund your education through winning a scholarship, first of all, our heartiest congratulations to you! However, you might be wondering if your scholarship qualifies as an income and do you owe taxes on your scholarships? Well, we are here to help you with your doubts like when are scholarships taxable? How are scholarships and grants taxable? Do I have to pay taxes on my financial aid?
To start off, it is possible that your scholarship may or may not be taxable. Speaking in general terms, a scholarship is ideally tax-free if you are a college student who uses the scholarship award to pay for your tuition fees, books, and other academic supplies. However, in certain cases like using the scholarship amount for your living expenses, it may become taxable. The taxability of scholarships depends on various factors. There are a number of restrictions in place to ensure you don’t take unfair advantage of Education Tax benefits.
So, which scholarships are taxable? Which are not? Read on to find out more about the taxability of scholarships.
Scholarships to pay tuition fees at a recognized university or educational institution- Not taxable
Taxes for grads- A scholarship to pay for your tuition at an eligible educational institution is not taxable. An eligible Educational Institution implies an institution whose main purpose is to impart formal education and instruction and has an enrolled student base. You need to be enrolled in the degree program and receive credits to be eligible for tax-free scholarships. However, if you use the amount for purposes other than tuition and fees payment, it may become taxable, and the same is the case for payment of services you do to receive the scholarship like teaching or interning.
Scholarships for non-eligible educational institutions: taxable
Taxes for grads- If you use the awarded scholarship amount you receive for non-formal education from an institution that is not officially accredited or recognized, then it may become taxable. The scholarship only remains tax-free as long as you use it to pay for your tuition fees from an eligible educational institution. So do reconsider using the scholarship money to take informal classes.
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Scholarship funds used for purposes qualified expenses- taxable
It might come across as surprising, but apart from the essential qualified education expenses like tuition fees and price of books and supplies, scholarship funds used for other educational purposes apart from tuition like room and board and travel and other living expenses are taxable, so do keep this in mind before opting for student accommodation or lodging.
Scholarships which include payment for your services: taxable
If you receive a scholarship grant which comes with the condition to work for it, by teaching, doing research, etc. and you receive payment for these services, keep in mind that these payments will be qualified as taxable income. All such payments will be subject to taxes except for some scholarships funded by government bodies like the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.
Veterans’ scholarships: not taxable | Do You Owe Taxes on Your Scholarships?
If you receive a scholarship under the Veterans’ Benefits Scheme, through your own military service, or through a family member, these funds for education and training are not considered taxable. If you’re a veteran, the IRS doesn’t consider funds you get for education or training to be taxable income.
Other scholarships –
Do you owe taxes on your scholarships like athletic scholarships, need-based scholarships, and other scholarships? Well, such scholarship awards are tax-free based on the essential condition that they are used for qualified educational expenses for a predetermined period of time.
Do keep in mind that even if your scholarships are taxable, they are still worth applying for as they will greatly reduce your educational expenses.
We hope that all your doubts including when are scholarships taxable? ,How are scholarships and grants taxable?, Do I have to pay taxes on my financial aid? , are resolved now.
We hope you enjoyed this article on Do You Owe Taxes on Your Scholarships. To know more about related fields, do check out our other blogs.
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