Scholarships are free money to go to college… right? The majority of the time, that holds true. But there are times where students may have to pay taxes on scholarship funds. While normally tax-free, the IRS states that if scholarship funds are used for “incidental expenses” like housing, transportation or meal plans, those funds must be included in a student’s gross income statement. Even scholarships intended to be used for room and board or for meal plans at school must be reported.
Due to the coronavirus, Tax Day has been moved to July 15th. If you haven’t filed your taxes yet, and you’ve used scholarship money to pay for off-campus housing or school-related travel, here’s how to report your spending:
More information can be found on the IRS’s website.
In March, the Senate approved the CARES Act, an economic stimulus package to help support Americans in this time of crisis. Approximately $6 billion dollars was allocated to colleges and universities to distribute emergency financial aid to their students. The government intended students to spend this aid on food and housing, among other things. According to the tax code, that meant this aid could be taxed.
The American Council on Education wrote a letter addressing this issue to the House and the Senate, asking them to ensure that these emergency funds would not be taxed. The lawmakers agreed, and officially announced in May that these funds qualify as disaster relief payments and thus will not incur tax.
What do you think about paying tax on scholarships? As always, let us know in the comments.