The IRS and Your Scholarship Dollars

Students who receive scholarships or grants need to be aware that some monies they are awarded may be taxable. The portion of a scholarship that is taxable is that which applies to room, board, travel, and other noneducational expenses. On the other hand, scholarship dollars used for tuition, fees, books, supplies, and course-required equipment are nontaxable. If taxes are due, they are payable by the scholarship recipient. Generally, students do not receive enough yearly income to owe tax, especially if they file independently and can take a personal exemption. Students claimed on their parents' tax returns may not fare as well. The key is to apply scholarship dollars to tax-free expenses first - such as tuition and fees. The taxable portion of the scholarship will be, essentially, what's left over. School bills should detail these items quite specifically and show scholarship monies received, as well. Teaching grants or project assistantships are nontaxable if they are integral to a student's studies. By the same token, research assistantships that "benefit" the school, rather than the student, are taxable. Certainly, receiving a scholarship can be a major education funding boost. However, it is important for the scholarship recipient to understand the sometimes "taxing" issue of scholarship dollars.

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