College is becoming more expensive for Americans, leading many families to turn to outside resources, such as loans, scholarships and grants to help cover the costs. However, it’s important to keep in mind that sometimes this assistance may be taxable.
For example, young adults who receive scholarships, fellowships or grants for amounts that exceed their qualified expenses may have to claim the remainder of the award, according to Texas newspaper, the Star-Telegram. Under the current IRS rules, qualified education expenses include tuition, books, fees and course materials. However, it’s important to remember that room and board - a significant portion of a student’s overall college bill - are not considered qualified expenses.
Additionally, some education benefits are not taxed at all, such as veterans' rewards or matriculation at a service academy, the newspaper reports.
There are some ways to reduce the amount of taxable aid owed to the IRS. For example, if the student is considered a dependent on his or her parents’ taxes, they may claim a dependent exemption, which will help lower the burden of their taxable income. Additionally, parents should maximize credits and deductions to chip away at the amount they owe Uncle Sam.
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.