Scholarships: Are They Taxable?

Scholarships are free money for college, right? Well, the IRS may see it differently. They must meet certain requirements to be tax-free. Read below to know what to report!

Scholarships, Defined

Scholarships are monetary amounts paid to students strictly for study. If they are contingent upon the student completing work-study or research, they are treated differently.

When are They Tax-Free?

To be exempt from taxation, the student must be a candidate for a degree at an educational institution that has a faculty, curriculum, and enrolled students in the traditional sense. Also, the scholarship money must be used for tuition and related expenses, such as books and supplies.

When are They Taxed?

Some may be taxed. When used towards room, board, and travel, the amounts must be reported as gross income. Also, when the scholarships are received as payment for services such as teaching (except for certain programs), it must also be reported as such.

How do I Report Scholarships?

If your scholarship money falls under taxed income, you will report it on Form 1040 (or 1040A, 1040EZ) as regular wages. If you did not receive a W-2 for these wages, also add ‘SCH’ next to the amount. And if you file a 1040NR, there is a specific line for scholarships.