College is expensive. Fortunately, many institutions and organizations offer scholarships to offset the cost of higher education. You might earn a scholarship based on academic achievement, service, art, contests, leadership, or financial need. Because a scholarship has a monetary value, there could be tax implications – depending on the type of award. Below are some of the questions you might ask regarding your scholarships and taxes.
Is my scholarship tax-free?
For a scholarship to be considered tax-free, you must be:
- Enrolled full or part-time at an institution with a regular staff, student body, and curriculum.
- Using your scholarship for tuition, fees, books, supplies, and/or other equipment required for your degree.
Will my scholarship be taxed?
Your scholarship will be taxed if you used it to pay for:
- Room and board
- Travel (i.e. study abroad)
- Clerical help or tutoring
- Fees, books, supplies, or equipment not required for your courses
If you used only a portion of your scholarship for tuition, that percent will be tax-free. However, if you use the other part for room and board, that percent will be taxed.
How do I report a scholarship on my taxes?
If any portion of your scholarship is taxable, report the amount as wages. Use the code “SCH” to denote that it is income from a scholarship. Report it on line 1 of a 1040-EZ form and line 7 on a 1040 or 1040A.
If you do not receive a W-2, you are still required to report the taxable amount of your scholarship on your taxes.
If your scholarship is tax-free and it is your only income for that tax year, you do not have to report it and you do not have to file a tax return.
Should I make estimated payments on my scholarship tax?
If you know part of your scholarship is taxable, it is advised to pay estimated payments on your scholarship tax. If you owe more than $1,000 at tax time and you didn’t pay estimated quarterly payments, you might be hit with an extra fee. Even though most people who pay quarterly payments are self-employed, it is a good idea for students to pay them as well. Read more about making these payments here.
What is form 1098-T?
Form 1098-T is given to all students who attend college and are billed by the university. It will either show how much you paid in Box 1, or how much you were billed in Box 2. It covers tuition, fees, and other course-related expenses. Use this form to calculate tax benefits you might be eligible for. Even if you pay for most of your expenses with scholarships, you might still be eligible for the Lifetime Learning Credit or the American Opportunity Tax Credit. There is also a Tuition and Fees deduction, which can sometimes reduce tax liability if nothing else applies. Read more about credits for students here.
This article is accurate for returns filed through tax year 2017. Under the Tax Cuts and Jobs Act, some of the laws mentioned changed beginning in 2018. Learn more about the updated tax laws enacted under the Tax Cuts and Jobs Act here.