As the cost of higher education rises, students increasingly depend on financial aid and awards like scholarships and grants to afford college. A scholarship or grant you receive to help pay for education may or may not be considered income for tax purposes, depending on factors such as how you use the cash you receive.
Cash you get from college scholarships, grants and fellowships is not considered taxable income if you meet a few basic qualifications. To qualify for tax-free status, you must be attending a primary or secondary school or pursuing a degree at a college or university. You also have to use the funds for qualifying educational expenses, which include tuition and fees required to attend school as well as required course-related expenses, such as fees, books, supplies and equipment.
A scholarship or grant may provide funds that you can use for expenses other than tuition and required fees. The amount of any scholarship used to pay for non-qualifying expenses is considered taxable income. According to the Internal Revenue Service, common expenses students have that are not qualified include the cost of housing, meals and traveling. In addition, cash spent on supplies and equipment you buy that are not required of all students does not qualify for tax-free status.
Scholarship and grant money is only tax-free to the extent of your qualifying expenses. For instance, if you get several different scholarships that cover all your qualifying expenses and you have some grant money left over, that extra amount is taxable. If you perform services such as teaching or research as a requirement to receive scholarship funds, then the cash is considered taxable income.
The U.S. government provides a variety of benefits to former service members, including educational assistance in the form of the GI Bill. The GI Bill can potentially cover the full cost of tuition at a state institution and provide cash toward tuition at private schools. According to the IRS, any money you get for education, training or subsistence under any law administered by the Department of Veterans Affairs is tax-free.
- Internal Revenue Service: Scholarships, Fellowships, Grants, and Tuition Reductions
- TurboTax: Are Scholarships, Fellowships, Grants Considered Taxable Income?
- Internal Revenue Service. "What Is an Eligible Educational Institution?" Accessed Oct. 17, 2019.
- National Scholarship Providers Association. "Guide to the Tax Treatment of Scholarships," Page 1. Accessed Oct. 17, 2019.
- Internal Revenue Service. "Topic No. 421 Scholarships, Fellow Grants, and Other Grants." Accessed Oct. 17, 2019.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.