College is expensive. Fortunately, many institutions and organizations offer scholarships to offset the cost of higher education. 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.
Do I have to pay tax on my scholarship?
This depends on your enrollment status and what you are using your scholarship to pay for.
For a scholarship to be considered tax-free, you must be:
- Enrolled full or part-time at an accredited institution with a regular staff, student body, and curriculum.
- Using your scholarship for qualified expenses, including: tuition, fees, books, supplies, and/or other equipment required for your degree.
If you are using your scholarship to pay for anything other than qualified expenses, it is considered income and you will have to pay tax on the amount. Expenses that are not qualified include:
- 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.
Is a scholarship considered income for taxes?
Typically, money used to cover tuition costs and direct education expenses does not count as income for tax purposes, so you don’t need to report it on your tax return. But, if the scholarship or grant money is being put toward unqualified expenses – things like study abroad or room and board – you will need to report it.
Work-study is a little bit different. It is treated like a job, so money earned should be reported on your tax return. Similarly, if you receive a scholarship in exchange for teaching, doing research, etc. then the value of the scholarship should be reported as income.
Also note that if the total amount you receive in scholarships is more than the cost of your tuition and qualified fees, you’ll need to report the difference on your tax return.
What do I do with Form 1098-T?
Your Form 1098-T, Tuition Statement shows how much you paid to your school for “qualified expenses” like tuition, enrollment fees, and required course materials during the year. It also shows the amount of scholarships or grants that were paid directly to the school.
When you file your tax return, you’ll use the Form 1098-T to report this information. It will be used to determine which tax benefits you are eligible for as a college student.
How do I report a scholarship on my taxes?
Filing a tax return online with TaxSlayer is straightforward, and college students can typically file for free using TaxSlayer’s Simply Free option.
You’ll use the information from Form 1098-T to report your scholarship or grant income, plus any expenses paid to the school. Follow the step-by-step instructions, and TaxSlayer will input your answers where they belong on your return.
Can I get education tax credits if I have scholarships?
You may still qualify for a tax credit even if you receive scholarships from your school. The Lifetime Learning Credit and the American Opportunity Tax Credit can help offset the cost of qualified expenses that are not covered by grant or scholarship money.
Depending on your situation, you might qualify for one credit but not the other, or you may be able to choose which credit to take. For more information about college tax credits, read College Students: Are you Getting Your Education Tax Credits?
Do you have student loans? Learn about the student loan interest deduction.
The information in this article is up to date through tax year 2020 (taxes filed 2021).