Scholarships are great, all free money is. But as is true for earned income, students who receive awards may have to report them to the Internal Revenue Service (IRS). To be in the clear, undergraduate and graduate students should take the time to check if their scholarships and fellowships are tax free. As long as students are careful about how they spend the money, their awards will probably be tax exempt.
Scholarships and Grants are tax exempt if:
1. The recipient is a degree candidate at an educational institution with a regular faculty, curriculum and enrolled body of students who attend at the location of educational activities.
2. The scholarship money is used for required tuition, fees, books, supplies and equipment. Scholarship money used for room and board, travel and optional supplies is taxable.
3. The recipient is not accepting the scholarship in exchange for services received (e.g., teaching and research). This rule does not apply to scholarships received from the National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.
Sometimes, only a part of a student’s scholarship or fellowship will be taxable. For example, a student may receive $3,000 in fellowship money from a school. However, $2,000 of the money will be offered in exchange for assisting a professor in her research (fellowship money usually accompanies such stipulations.) The remaining $1,000 will not be taxed, as long as it is used for qualified school expenses. A student’s future research service earnings may have to be estimated and reported, even if the work has not yet been completed.
To be certain that all income is accounted for, students should take a look at scholarship conditions and whether they can be used to cover qualified expenses. Students who believe their scholarship and grant money may be taxable should report their award to the IRS. If the scholarship is not taxable and the student has no income aside from the scholarship, a tax return does not need to be filed. To find additional information on scholarship, grant and fellowship opportunities, students should conduct a free scholarship search and take a look at Scholarship.com’s financial aid resources.
And remember, there’s no need to rely on expensive student loan options to pay for your college education. For more information on finding free scholarship money for college, conduct a Scholarships.com free college scholarship search today, then apply and win! It’s that easy!