scholarship money sometimes taxable?
I have two children attending separate universities
and need advice on how I should treat their scholarships for tax
purposes. Fortunately, both children received an abundance for their
My son received the presidential scholarship, which
covers tuition, fees, books, room and board and living expenses,
as well as Missouri's Bright Flight and several private scholarships.
This gave him about $5,000 extra his freshman year of college.
My daughter received the president's scholarship at
the university she attends, which covers tuition. She received additional
private scholarships that help to cover all of the rest of her living
I have questioned three local CPAs about how I should
treat these funds and what, if anything, is taxable. I have been
told by all three that nothing is reportable for tax purposes. What
I have read tells only tuition, books, fees and required purchases
related to their field of study are tax-free. Anything received
for room and board or additional living expenses is taxable.
Where is the conflict in this? Most of the tax-related
information I have read concerning college students refers to the
credits and deductions for expenses incurred. I need help on what
parents should do when their child gets everything covered. We've
never received any tax documents from either university or the private
scholarship funds. I have contacted both financial aid offices and
no one there can offer any advice. I contacted the Internal Revenue
Service several times and each person I spoke to had a different
version. Help! I'm totally confused. Thank you.
If three CPAs tell you there's nothing to report, why wouldn't you
believe them? If what you've read is about credits, then you read
the wrong publication. Scholarships and fellowships are discussed
As you suspect, the amount of scholarships and grants
provided for your children's education that exceeds their tuition,
fees, books and required (not suggested) equipment is taxable income.
The truth is though that this rarely ever gets reported by the scholarship
grantor and that's probably why the CPAs said it's not taxable.
Starting in 2003, the amounts should be reported on
1098-T. The IRS just finalized the regulations relating to the
requirements by educational institutions in completing these forms
and 2003 is the first year that penalties may be imposed for failure
to report these amounts.
However, the educational institution will only report
amounts that it administers. If your child received a direct payment
of scholarship funds, it is up to that payer to report the scholarship.
Whether or not you receive a 1098-T, the taxable portion of the
scholarship should be reported on the wages line of your child's
Form 1040. According to Publication 520, you should write "SCH"
next to the wage line.