By Sydney Robertson

     Each year, millions of students graduate from high school. Additionally, millions of dollars in scholarships fall into the hands of students who had to ask permission to use the restroom just a few months prior. Not many students know that they might need to report parts of their scholarships to the government. And while not all parts of a scholarship are taxable, an understanding about scholarship taxation will help a young tax filer correctly report his/her scholarship on their annual tax return.

Some types of scholarship money do not require tax or reporting to the government when filling a tax return. For consideration as tax-free money, a student must attend an institution as a degree-seeking full-time or part-time student. If scholarship money pays for tuition, it does not incur tax nor does it need to be reported. Money used for fees required by enrolling in or attending an institution does not require reporting. Additionally, scholarships that cover books, supplies, and equipment required for courses are tax-free. The award does not get taxed if used for any of the situations above.

On the other hand, there are several situations in which scholarship money is taxed. Room and board money must be filed on the tax return. Additionally, money used for travel, research, office supplies, and materials not required for a course are also taxed. If a situation arises where some of the scholarship goes to tuition and some goes to room and board, the room and board portion is taxable while the tuition portion is not. Additionally, if filing for an educational deduction, the deduction amount must decrease by the amount of tax-free scholarship money.

If a tax-free scholarship award is the only income for a student, then there is no need to file or report any scholarship at all. On the other hand, a taxable award or portion of a taxable award that does not appear on a W-2 must be reported. The following forms can all report a scholarship claim. A tax filer should pick the correct form based on his/her current situation:

  • 1040 – U.S. Individual Income Tax Return
  • 1040A – U.S. Individual Income Tax Return
  • 1040EZ – Income Tax Return for Single & Joint Filers with No Dependents
  • 1040NR – U.S. Nonresident Alien Income Tax Return
  • 1040NR-EZ – U.S Income Tax Return for Certain Nonresident Aliens with No Dependents”1

Depending on the form, the scholarship award might need a different method of reporting. Here are some of the forms and how they require scholarship money to be reported:

  • 1040EZ Form: Include the taxable amount in the total on line 1. If the taxable was not reported on Form W-2, also enter ‘SCH’ and the taxable amount in the space to the left of line 1.
  • 1040 Form: Include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter ‘SCH’ and the taxable amount on the dotted line next to line 7.
  • 1040A Form: Include the taxable amount in the total on line 7. If the taxable amount was not reported on Form W-2, also enter ‘SCH’ and the taxable amount in the space to the left of line 7.”1

Although this seems like a lot of information, tax professionals at North Georgia Accounting Solutions can help ease the process. For further questions or help with filing scholarship tax, feel free to contact one of our tax specialists at 678-804-4011 or drop by our office located at 4315 South Lee Street, Suite 300, Buford, GA 30518.

 

Bibliography

1Hoyt, Elizabeth. “Should I Claim Scholarships & Other Awards on My Taxes?” Fastweb. N.p., 16 Feb. 2017. Web. 14 July 2017.

“Scholarship Money And Taxes | H&R Block.” Scholarship Money And Taxes | H&R Block®. N.p., n.d. Web. 14 July 2017.

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