Wait! What? My scholarship money is taxable?
Many students have no idea that their scholarships might be taxable.
Due to the coronavirus the income tax deadline has been extended to July 15, 2020.
Payments and interest on federal student loans for 6 months of relief….
So, about those scholarships and possible taxation.
Any aid used for living, travel and other expenses is taxable income. The Tax Reform Act of 1986 made aid used for living (housing, food) and travel expenses taxable. Financial aid use to buy textbooks and college supplies remains free of taxation.
Calculating the amount of tax owed is confusing. Students receive a 1098-T tuition statement which shows how much a student received in total financial aid and how much they paid in tuition and fees. Check the annual IRS tax guide and guide to tax benefits for education to find out how much tax you might owe. Be informed and prepared so you aren’t blind-sided by a tax bill.
See: “Reporting Scholarships and Fellowship Grants” on p. 6 of the IRS 2019 guide to tax benefits for education.
A variety of organizations have been working to restore tax-free status to financial aid used for living and travel expenses.
I remember the good old days where I earned a B.S., M.S. and Ph.D. without taking out any student loans. I was lucky to have a New York State Regent’s Scholarship to pay undergrad tuition, a job as a resident assistant my junior and senior years which paid room junior year and room and board senior year. With some help from my parents and summer jobs I was able to pay for the rest of my expenses. Of course this was back when the minimum wage was wroth far more than today and before the strong anti-tax movements of the Reagan years when citizens understood the value they received for paying taxes. Of course, like most students, I didn’t own a car so escaped that expense. I saved enough while earning my master’s degree to be able to travel in Europe during the summers. I used to wait until the last day to pay (in person) my quarterly doctoral program tuition with my credit card. Payment wasn’t due until the quarter was nearly finished so I kept earning interest on my savings, back when savings accounts paid real interest.
Source: Financial Planning for Women