Tax Planning What Your Scholarships and Grants Mean for Your Taxes? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Jim Wang Published Aug 17, 2023 3 min read Reviewed by Katharina Reekmans, Enrolled Agent College can be very expensive and many students rely on scholarships and grants to help lower the cost of higher education. When I attended Carnegie Mellon University, I had the help of need-based grants and a handful of merit-based scholarships. Back then, I was just glad to receive help and never even considered the tax implications. Fortunately, the tax code looks favorably at scholarships and grants. If you are a student who received college scholarships or grants, here are some tax tips to help you understand how scholarships or grants impact your taxes. Do you really have to pay taxes on a scholarship? The answer is… maybe. Scholarships and Grants That Aren’t Taxed The good news is that you won’t pay any taxes on scholarships or grants for what the IRS calls “qualified education expenses.” What qualifies as a non-taxable education expense? Any funds you receive to pay for tuition, school fees, books, or any supplies required for courses at your school. The IRS also notes that to qualify, you must be a “candidate for a degree at an educational institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.” There are no taxes to pay if you received a scholarship or fellowship as part of the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program. This also applies to anyone who is part of a qualifying work-learning-service program. So what scholarships and grants ARE taxable? Taxable Scholarships and Grants If you paid for your qualified education expenses and have scholarship funds left over, that leftover money counts as taxable income. Any scholarship funds that go towards your room, board, or utilities are taxable. Any funds used for college expenses outside of the required supplies for your education are taxable too and applies to any school-related travel that is paid for by the scholarship or grant funds. If your grants, fellowships or assistance programs require you to provide some type of service while enrolled in school, this could make them closer to a stipend or payment rather than a scholarship. For example, if you received a $10,000 scholarship and $4,000 was designated as compensation for teaching or research while at school, that portion would be taxable income. The remaining $6,000 may not be taxable if used towards qualifying education expenses. Paying Taxes on Scholarships and Grants If any of the funds count as taxable income, you should receive a Form W-2 from your scholarship’s provider. The W-2 will show you the taxable amount to claim on your taxes. If you don’t receive a W-2, it’s a great idea to reach out to your scholarship provider to find out why. Also, keep in mind that you cannot “double-dip.” If you paid for qualified education expenses with tax-free scholarship funds, you can’t also claim an education tax benefit like the American Opportunity Tax Credit or the Lifetime Learning Credit. Don’t worry about knowing these tax rules. Meet with a TurboTax Full Service Expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind. Get started now Previous Post Back to School Series: It’s Time to Use Your 529… Next Post 5 End of Summer Planning Tips to Help You Save… Written by Jim Wang More from Jim Wang One response to “What Your Scholarships and Grants Mean for Your Taxes?” You should also add taxable scholarships can trigger the so-called “kiddie tax.” Reply Leave a ReplyCancel reply Browse Related Articles Tax Tips Surviving College and Tax Season: 7 Tips for Students Student Athlete What are Alston Awards and the Tax Implications? TurboTax News Need Financial Help for School? TurboTax Launches 2nd Y… TurboTax News TurboTax Launches #LeadingConEducación a Program to Em… TurboTax News Get to know 2021’s #LeadingConEducación Scholarship … Education 5 Tips to Save for College Tuition Tax Planning Ten Money Saving Tips for College Students Education 4 Little Known Tips to Help You Pay School Tuition Education An Education in Student Savings – 10 Common Tax Deduc… Tax Tips International Student Tax (File for F-1 Tax Returns)