Do I Have to Pay Taxes on Scholarships?

August 05, 2015 : Lynn Ebel

Editor’s Note: Scholarships are free money! Actually, depending on how the scholarship money is used, it could be taxable. Read on to learn when you need to report money from scholarships and when it’s tax-free. 

College students and their parents often ask whether or not you have to pay taxes on scholarships. As always, we are here to help!

First, let’s clarify which payments are scholarship payments. Scholarships are monetary amounts paid to a student, at an educational institution, for the purpose of study. This is important because some payments may be contingent on the student providing a service (like work-study) or as compensation for research. Those payments receive different tax treatment.

Scholarships are tax-free when the student meets the following requirements:

  • The student is a candidate for a degree at an educational institution that has regular faculty, regular curriculum and a regularly enrolled population of students in attendance.
  • The amounts received are used to pay tuition, fees and other expenses generally required for enrollment in the course, such as certain books and supplies.

If scholarship amounts are used for other expenses, they are included in gross income; for example:

  • Amounts used for incidental expenses such as room and board, travel and optional equipment.
  • Amounts received as payment for teaching, research or other services that are required as a condition to receiving the payment. (Payments to students for services required by the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program are excluded from gross income.)

If you have amounts that must be included in taxable income, you will report them on Form 1040 or1040A, or 1040EZ on the “Wages, salaries, tips” line. If no W-2, Wage and Tax Statement was received, also enter “SCH” by the taxable amount. If you file a 1040NR, there will be a line specifically for “Scholarships and fellowship grants.”

When in doubt, contact a tax professional when it comes to deciding if you have to pay taxes on scholarships or for help addressing your specific situation!

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Lynn Ebel

Lynn Ebel

The Tax Institute, H&R Block

Lynn Ebel, JD, LLM, is manager of The Tax Institute's research department. Lynn specializes in real estate tax issues, including property transfers, passive activity losses, and bankruptcy issues.

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