If you or your child received a college scholarship, here’s how it will affect your tax return.
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This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.
Are college scholarships taxable?
College scholarships may be taxable to the student.
Scholarships are not taxable when they are for tuition and fees to enroll in courses or for required fees, books, supplies, and equipment for those courses.
Scholarships are taxable when they are for room, board, and discretionary items. This can include scholarships that are specifically for these purposes or scholarships that are in excess of non-taxable expenses.
For example, you get a $15,000 scholarship and have $10,000 in tuition. You get the $5,000 as a refund and can spend it on room, board, or other expenses while you’re in school. $10,000 is not taxable and $5,000 is taxable.
Do college scholarships count towards your AGI?
The taxable part of a college scholarship counts towards your Adjust Gross Income (AGI).
This might affect your eligibility for tax credits with income limits such as the American Opportunity Tax Credit or Lifetime Learning Credit.
What if you provide services to the school?
If you have to provide services to the school, such as teaching, to receive a scholarship, it’s generally considered a stipend not a scholarship for tax purposes. This is taxable income even if it goes towards tuition, books, or similar expenses.
Are athletic scholarships taxable?
Being a student-athlete is not considered performing a service to the school like teaching or work-study programs are. Athletic scholarships are treated similarly to academic or needs-based scholarships.
Your athletic scholarship isn’t taxable if it goes towards towards the usual non-taxable expenses. If it goes towards other expenses, including if you receive more in scholarship money than your non-taxable expenses, that portion becomes taxable.
If you receive an NIL deal for playing a college sport, that income generally is taxable.
Does a college scholarship change whether you’re a dependent?
A college scholarship doesn’t directly change whether you’re a dependent. To be a dependent, your parents need to provide more than half of your support.
To determine who paid for more than half of your support, you look at things like money you got from a job and money your parents gave you. Scholarships don’t count when determining support.
However, if your parents aren’t giving you money because you have a scholarship, it’s more likely that you’re providing more than half of your support.