Are scholarships and grants taxable? This is a question that is one of the most frequently asked when a student receives grant or scholarship money and is suddenly faced with the question of whether or not they will need to include these amounts on their income tax return. The answer is relatively simple, though there are a number of ins and outs that you need to understand in order to answer the question completely.
Are Grants and Scholarships Taxable?
The short answer is that grants and scholarship that pay for tuition including tuition, fees and text books are not taxable. However, grants and scholarships that pay for a student’s room and board are indeed taxable. Needs based grants are treated the same way. The grant or scholarship’s taxability is based on what the money is being used for.
FAFSA and Tax Status
Completing the FAFSA makes it easier to determine a grant or scholarship’s taxability. Taxable scholarships and grants are automatically included in the student AGI on the tax return. If the scholarship covers both tuition as well as room and board the amount allotted to room and board will be included in the taxable section.
It is a general rule of thumb that if a fellowship grant is given to you and you are a candidate for a degree at a traditional educational institution and that the amounts you receive are used for tuition, fees and books/supplies that it will be tax free. If, however, any part of the fellowship grant is applied to room and board, that amount is, by law, taxable.
If you receive income in any amount for services that are required by the National Health Service Corps Scholarship Program, the Financial Assistance Program or the Armed Forces Health Professions Scholarship then you do need to include the amounts on your income tax as gross income. These amounts will also be treated as non-taxable income just as traditional scholarships, grants and fellowship grants would be.
If you are interested in more information from the IRS regarding the taxability of scholarship, grant and fellowship grant money, please visit: IRS PDF. If you need more information on the FAFSA and how it can help you to determine the tax status of your various awarded scholarships, grants and fellowship grants, please go to: FAFSA
If you have any further questions regarding the taxable status of your scholarships, grants or fellowship grants you may want to consider consulting with a tax specialist in order to determine just how much you need to claim and what forms you will need to file in order to cover all of your basis and remain within the legal boundaries when it comes to your taxes. If you receive enough monies through your scholarship or grant programs you may need to file an itemized tax form.