Scholarships & Grants
Awarded a scholarship? Applied for grant? Find out what free money means to you and your taxes.
Are you receiving scholarships, Pell Grants, veterans' (VA) benefits, or other sources of financial aid to help you pay for college or vocational training? If so, you'll need to know how much, if any, of your scholarships and grants are taxable. Here are the basics.
Scholarships
A scholarship is generally an amount paid to help an undergraduate or graduate student at an educational institution to pay for his or her studies. Scholarships include amounts paid because of special intellectual, athletic, musical, or other abilities. Scholarships may or may not be taxable to the recipient, depending on whether the recipient is pursuing a degree and what the scholarship amounts are used to pay for.
Only scholarship amounts used to pay for tuition and required fees are non-taxable. Required fees are items that are required for all students in a particular program. In other words, if a student must buy a special book for an independent study project, scholarship amounts used to purchase that book would be taxable because the other students in the degree program didn't have to buy that book. For more information
Please Note: Scholarship amounts used for room and board, travel, research, clerical help and equipment are taxable.
Special Grants
Pell Grants, Supplemental Educational Opportunity Grants and Grants to States for State Student Incentives are treated like scholarships and are tax-free if they are used to pay for qualifying expenses. Money from these sources that is used for travel to and from school is taxable. Do you receive VA benefits? Payments received for education, training or subsistence under any law administered by the Department of Veterans Affairs (VA) are tax-free.
A Fulbright Grant is a grant under the Mutual Educational and Cultural Exchange Act of 1961, known as the Fulbright-Hays Act. Supplemental grants may be received under the U.S. Information and Educational Exchange Act of 1948 (Smith-Mundt Act) for study, research or teaching abroad. These grants are generally treated as any other scholarships in figuring how much of the grant is tax-free. For example, if a taxpayer receives a Fulbright Grant for lecturing or teaching, it is payment for services and is taxable.
How to Report Scholarships and Fellowships on the Tax Return
Don't report non-taxable scholarship amounts on your tax return. Taxable amounts are included with wages, even if the scholarship amounts aren't shown on a W-2 form.
Form 1040EZ: Include on line one the taxable amount not reported on Form W-2. Print "SCH" and the amount not reported to the right of the words "W-2 form(s)" on line one.
Form 1040 or 1040A: Include the taxable amount not reported on Form W-2 on line seven. Print "SCH" and the amount not reported on the dotted line next to line seven on Form 1040 or in the space to the left of line seven on Form 1040A.
