Are Scholarships and Grants Taxable?
When you get money from someone else, whether it’s your parents or your boss, you must pay taxes on it.
With scholarships and grants, you might be tempted to think they’re tax-free income, but that’s not always the case!
In this article, we take a look at whether scholarships and grants are taxable, and when they are or aren’t taxed under U.S. federal law.
Read on to learn more about this topic!
Everyone knows that scholarships and grants aren’t always as straightforward as they seem, but can someone receiving scholarship or grant money actually be taxed on it?
It might surprise you to learn that some taxpayers do end up paying income tax on scholarship or grant money.
However, there are also plenty of exceptions to these general rules that allow many students to avoid taxation.
Why should you even care about whether your scholarship is taxable or not?
After all, if Uncle Sam is going to take a chunk of your hard-earned cash for taxes anyway, why not just skip writing off your education expenses and keep all of your money?
Well, it turns out that depending on how much you earn from scholarships and grants during school, doing so could be costing you thousands of dollars.
Are scholarship donations tax-deductible?
Yes, there are two kinds of tax-deductible donations.
First is for scholarships for education – which is deductible by employers.
Second is for scholarships given to other entities such as churches or institutions such as a YMCA.
Both types of donations must be intended for educational purposes, and those receiving them must be under 18 years old (for example) to qualify.
How much of your scholarship award is taxable
The short answer is that you have to pay taxes on all of your scholarship award, unless you meet certain criteria.
Whether your scholarship is taxable depends on a variety of factors; it’s important to understand these factors so that you can apply them to your specific situation.
Can you claim a tax deduction for your scholarship award?
Scholarships and grants aren’t taxed as income. However, scholarships are an above-the-line deduction—this means you can deduct them even if you don’t itemize your deductions on Schedule A.
How do I know if my scholarship is taxable
It all depends on what you use it for. According to Fin aid, if you receive a scholarship or grant that is to be used to pay college expenses, then your school will send you a 1098-T Form for tax purposes.
If your institution does not send you a 1098-T Form, don’t panic: In most cases, scholarships, and grants are considered taxable income.