Having some way to help pay for college expenses can make the whole process a lot easier. Scholarships, grants, and fellowships are a great way to make payment easier. Scholarships and grants are generally paid to a student for a specific school or institution. Fellowships are similar, although money can be used for study and research reasons. If you are the recipient of a scholarship, grantor fellowship that helps fund your education, Congratulations! However you need to know how these awards can affect you at tax time.
There are different need-based grants available to students, such as the Pell Grant or Fulbright Grant. These grants and scholarships may be fully or partially tax-free. In order to get a tax-free grant, fellowship, or scholarship, you must:
- Seek a degree at an institution that qualifies and has regular enrollment and attendance, as well as regular faculty and a physical location and curriculum.
- Use the amount to pay tuition and other fees, or purchase required books, supplies and equipment.
You’re required to include in your gross income:
- Any amount you used to pay incidentals such as travel, lodging and optional supplies.
- Any amount received in exchange for services such as teaching, researching, or other stipulation. National Health Service Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program amounts are not required to be added to income.
Amounts of these awards that apply to your gross income will have to be reported to the IRS at tax time on Form 1040A. Enter SCH in the space to the left of “wages, salaries, and tips”. Other Form 1040‘s have a specific line for scholarship awards. IF you received additional funds through a grant, you may have a newly generated W-2, which you can use to file your tax return. Be aware that you may need to make estimated tax payments throughout the year.