Is My Scholarship Taxable?
The quick answer is yes and no. You see, it could be both part taxable and part tax-free.
Your scholarship or fellowship is tax-free if you are a full-time or part-time candidate for a degree at an eligible educational institution. This can be a primary, secondary or post-secondary school. But there are very definite limits what the award can be used for and still be tax-free. Your scholarship or fellowship can be considered non-taxable if it was used only for tuition, fees, books, supplies and equipment that are all required for your courses.
If any part of your award was used for room and board, travel, research, clerical help or equipment, that portion is taxable. So if your scholarship covers tuition as well as room and board, the amount spent on room and board is considered taxable; the amount spent on tuition is not.
Reporting the taxable part of your scholarship is easy on 1040.com. Go to our Form 1040 – Income Section screen and put the taxable amount of the year’s scholarship on line 7, Taxable Scholarships Not Reported on a W-2.
If you only had tax-free scholarship income for the year, there’s no need to file a return.
Other Types of Education Assistance
Pell grants and Fulbright grants are generally treated the same as scholarships when figuring how much is tax-free. Need-based grants, such as Pell and other Title IV grants, are generally tax-free to the extent that the grants are used for qualifying education expenses.
Veterans’ benefits — such as payments for education, training or subsistence — are all tax-free and should not be included as income.
Payments to armed service academy cadets, however, are different. An appointment to a U.S. military academy is not a scholarship in the eyes of the IRS. Payment received as a cadet or midshipman at an armed services academy is pay for personal services, and will be reported on a W-2.