Education costs are steadily increasing and more Americans are seeking out scholarships to help cover the high price of tuition. However, many have questioned whether scholarships are tax-free or must be included in their taxable income during filing season. The answer is: it depends.
Scholarships, as defined by the government, are funds intended to be used by an undergraduate or graduate student at an education institution. However, certain rules apply. In order to be tax-free, the student who has received the award must be a degree-seeking candidate at a qualified educational institution. Additionally, the funds must be used for qualified education expenses, such as tuition, fees, books and required course materials.
Some costs, such as room and board, travel, research and non-required materials are not considered qualified expenses under current tax laws, even if they are a condition of enrolling in a program. In these cases, scholarship funds used to pay for these expenses are taxable. However, some exceptions apply to this rule as well.
Scholarships received as payment for teaching or research that are granted by the National Health Service Corps Scholarship Program, Armed Forces Health Professionals Scholarship and Financial Assistance Program while the recipient is a degree-seeking candidate at a qualified institution are not taxable.
Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.