Tax Tips for Scholarships and Fellowships

If you or a child are receiving a scholarship or fellowship for attending a college or other form of higher education, there are a few tax tips to know in order to reduce or eliminate any taxes that may be imposed on these benefits.  Most types of educational assistance are tax free to the recipient.  But to be tax-free, the education assistance must meet certain requirements.

The education assistance must be either a scholarship or a fellowship.  A scholarship is any amount paid or, allowed to be paid, for the benefit of a student.  The student can be an undergraduate or graduate.  It must be paid to an educational institution to aid in the pursuit of studies.  A fellowship is generally the same as a scholarship, but it’s paid to an individual as aid to his pursuit of study or research.

The amount of scholarship that can be tax-free includes amounts paid for tuition, room and board, laundry service and any service typically received by a student on campus.  It can also cover other typical student fees such as matriculation fees and books.  It may even include amounts such as a family allowance.

The amounts received under a scholarship or fellowship are tax free only if the recipient is a candidate for a degree at an eligible educational institution.  A qualified educational institution is any institution whose typical function is the formal education of individuals through a regular body of students at a place (or places) that carry on educational activities.

Note there are certain rules applicable that tax the receipt of grants and scholarship money that are received for teaching, even if it is part of a degree requirement.  There are certain exceptions that may apply that will exempt this money from being taxed.

If you have received a scholarship or grant money to attend college or graduate school and need to assess your tax options, then schedule your free consultation by calling (480) 888-7111 or submit a web request here.