• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
Stay Informed Group

Stay Informed Group

Stay informed with opportunities online

  • International Scholarships
    • PhD Scholarships
    • Masters Scholarships
    • Undergraduate Scholarships
    • Scholarships by University
  • Courses
    • Online Courses
  • Schools
    • University Acceptance Rates
    • Universities and Colleges
    • Primary and Secondary Schools
  • Tips for Students
  • Careers and Jobs
  • Money
  • People
  • Tech
  • Top Lists
  • Place an Advert

Do Scholarships Count as Income?

August 25, 2020 by Bassey James Leave a Comment

Do scholarships count as income; are they taxable, or tax-free? This article will help you reconcile this little confusion across different scholarships, and understand whether or not they are taxable or tax-free.

In most cases, students studying at a college, university, or other recognized educational institution can avoid paying taxes on at least a portion of their scholarship funds. In general, you do not have to pay taxes on the scholarship money that will be used to cover the basic costs of your studies. The IRS calls these “qualified education costs or expenses”.

This means that you are unlikely to need to count these scholarships as income or pay tax on them if your scholarships are used to access courses or for special materials that your course of study 

do scholarships count as income
do scholarships count as income

Table of Contents

  1. How to Find Scholarships That Are Tax-free and do not Count as Income.
  2. How to Know if my scholarship does not count as income and tax-free
  3. Scholarships that are considered taxable income
  4. Some exceptions
  5. How to register tax credits for education
    1. American Opportunities Tax Credit (AOTC)
    2. Lifelong Learning Credit (LLC)
  6. Can I use scholarship money to pay off loans?
  7. How to Win a Scholarship that is Tax-Free
  8. Recommendations:

How to Find Scholarships That Are Tax-free and do not Count as Income.

Scholarships that are not taxable and do not count as income can be found everywhere. Whether a scholarship is taxable or not depends heavily on what type of student you are and where you want to spend the money. But first, you need to know how to look for scholarships in general before you determine whether your scholarship is tax-free or not.

To start your scholarship search, go to Stay Informed Group, including other scholarship search engines, you will see a list of the scholarships you can apply for. These should be scholarships that you have seen and that you are eligible for.

Aside from the scholarship search engines, you can ask your guidance counselor or college financial aid administrators about scholarship opportunities. You will receive inside information on tax-free scholarships from local institutions and organizations.

Also Read: How do Scholarships work?

How to Know if my scholarship does not count as income and tax-free

There are ways to determine whether a scholarship is tax-free or not before applying. First, there are general rules for tax-free scholarships or educational items that are not taxable with a scholarship.

In general, a scholarship is tax-free if you are a full-time or part-time candidate for a degree from a recognized university. They are also considered tax-free if they cover tuition fees, books, accessories, and course material.

However, there are educational fees that are taxable. This includes accommodation and meals, travel, research, administrative support and fees, books, and accessories that are not required for your course of study. For example, if you win a scholarship for tuition, room, and board, you do not have to pay taxes for tuition fees, but the room and board are taxable.

Winning a scholarship that is not tax-free should not be seen as a fine against you. The taxes you have to pay are minimal, especially for the amount that is used to pay for the education. Don’t avoid asking about scholarships that may be taxable and applying for them. Consider any money that you get for free to pay for your education as a worthwhile investment

Also Read: How to get scholarships for Studying Abroad

Scholarships that are considered taxable income

Suppose your daughter is a grad student having a scholarship for which she must be a teaching assistant. In this case, the tax regulations are different. This is because fellowships or scholarships that provide compensation are count as income and are taxable regardless of how the money is used. Even if a $20,000 fellowship for teaching assistants were used primarily for tuition and books, that $20,000 scholarship or fellowship would still be considered taxable income. The student stands to get a W-2 from the academic institution and should file a tax return.

Some exceptions

These IRS regulations apply to scholarships, grants, and fellowships, including Pell grants that are need-based that are funded by the government. However, there are exceptions.

For example, payments that were made through the GI Bill are not considered to be scholarships that count as income or taxable income. Students who are participating in the Armed Forces Health Professions Scholarship or the National Health Service Corps Scholarship Program and Financial Assistance Program generally do not pay taxes on their financial support for eligible educational expenditures. Student loans are of course never taxable as they are not normal scholarships, and are not considered income and must be paid back.

And to be very clear, scholarships that are awarded to students who are not participating in a study program are always taxable

Also Read: Expert scholarship advice

How to register tax credits for education

Education tax credits that reduce the amount of income tax you pay directly could be another way to offset a part of your child’s eligible university expenses based on her own income. There are two possible credits:

American Opportunities Tax Credit (AOTC)

American Opportunities Tax Credit (AOTC)
American Opportunities Tax Credit (AOTC)

This credit offers a maximum yearly credit of $ 2,500 per student for four years of college. To be eligible for full credit, your modified adjusted gross income (MAGI) must be $80,000 or less ($ 160,000 or less for joint marriage declarations). The tax credit for taxpayers whose income is above these levels is being phased out.

Official American Opportunities Tax Credit Page

Lifelong Learning Credit (LLC)

Lifelong Learning Credit (LLC)
Lifelong Learning Credit (LLC)

This credit offers a maximum of $ 2,000 each year per tax return, and not per student, but can be used for undergraduate studies, graduate studies, or professional courses with no limitation on the number of years. Income limits are lower: in 2019, the MAGI for individuals must be $ 68,000 or less ($ 136,000 or less for joint marriage declarations).

Official Lifelong Learning Credit Page

If you are eligible for both credits, you must choose one or the other. You cannot use both.

Can I use scholarship money to pay off loans?

Most scholarships that counts as income have a specific purpose, this includes tax-free scholarships. You usually can’t use the money for any other reason. Therefore, you could not convert them into cash and use them to repay your student loans. However, you may be eligible for a student loan forgiveness and can use this program to repay your loan.

How to Win a Scholarship that is Tax-Free

You can strategically search for scholarships that do not count as income, which are tax-free. First, ask for financial aids that cover tax-free education costs such as tuition, fees, and supplies. This way you can be sure that your scholarship is not taxable. In addition, when applying for a scholarship, it is always acceptable to contact scholarship holders to ask them questions such as: “Is this scholarship tax-free?” The more you know about your application, the better you can plan and allocate money if you really win.

Second, act strategically when looking for scholarships as a whole. Winning scholarships is a numbers game: the more you apply, the better your chances of winning.

Don’t just apply for these large scholarships that may or may not count as income, where you are simply asked to enter their contact details. Use part of your time to apply for the smaller scholarships, even local grants. The pool of these prizes is usually smaller, which would increase your chances of winning.

When it comes to non-taxable scholarships, don’t be afraid of applications that may require a little more work. Scholarships with dissertation requirements or letters of recommendation also have smaller groups of applicants. Sometimes hard work literally pays off!

Recommendations:

  • Can you use Scholarship Money For Anything?
  • DAAD Scholarships in Germany for Development 2022
  • 11 Study Abroad Scholarships for International Students 2023-2024
  • How do Scholarships work? All you need to know
  • 21 University Scholarships For International Students in Canada 2023

About Bassey James

Bassey Chimezirim James is an ardent writer who has written for top education and tech websites, which includes the likes of World Scholarship Forum, After School Africa, Gadget Wrights, etc. James is a public speaker; a graduate of Physics and the Team for the http://stayinformedgroup.com/ Project.

Reader Interactions

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Footer

25 Innovators Examples

15 Media Literacy Examples

25 Best Passion Examples

26 Best Honesty Examples

What is Nationalism and Patriotism (Nationalism Vs Patriotism)

25 Free Printable Bible Study Lessons with Questions and Answers PDF

List of Websites for Free College Textbooks PDF

How To Make Money Online As A Student | Top 10

What is an Academic Reference?

Financial Independence Starts Here: A College Student’s Guide to Money Mastery

How to Write a Dissertation: Step-by-Step Guide

Do You Get Paid for a Work Placement at University?

How Many Degrees Can You Get?

What Are The 12 Ivy League Schools in 2023?

Why Are Stanford Duke and MIT not Ivy League Schools?

What are the Public Ivy League Schools in 2023?

Top 10 Marketable Careers in the World in 2023

Engaging with Parents and Teachers: A Critical Aspect of School Board Elections

5 Tips for Effective Time Management in Online Learning

The Impact of Alternative Certification Programs on Student Achievement

20 Best Social Media Examples

25 Innovators Examples

15 Media Literacy Examples

25 Best Passion Examples

26 Best Honesty Examples

What is Nationalism and Patriotism (Nationalism Vs Patriotism)

12 Angel Number Meaning: All you need to know

8 Angel Number Meaning: All you need to know

318 Angel Number Meaning: All you need to know

1220 Angel Number Meaning: All you need to know

1224 Angel Number Meaning: All you need to know

25 Free Printable Bible Study Lessons with Questions and Answers PDF

35 Angel Number Meaning: All you need to know

1020 Angel Number Meaning: All you need to know

317 Angel Number Meaning: All You Need To Know

7373 Angel Number Meaning: All You Need to Know

List of Websites for Free College Textbooks PDF

231 Angel Number Meaning: All You Need to Know

How To Make Money Online As A Student | Top 10

0101 Angel Number Meaning: All You Need to Know

Top 10 Marketable Careers in the World in 2023

What Jobs can you Get at 14 Years Old?

Is Real Estate Investment Trusts A Good Career Path?

Five Alternative Careers You Can Consider With an Education Degree

CDI College Montreal Work Permit in 2023

12 Free Online Counselling Courses with Certificate

Motivation Letter For Job Application Example 2023

100 Strategic Questions to Ask Senior Leaders

110 Good Questions to Ask the CEO

20 Fully Funded PhD Programs in 2023 – 2024

16 Best Jobs in Canada for Immigrants in 2023

Military Enlistment Age Limits in 2023

What Companies are in the Consumer Non-Durables Field? Top 10

Google Apprenticeship Program 2023 | Learn and get paid

20 Best Places That Hire You at 15 Years Old or Less 

Is Technology A Good Career Path For You?

Top 10 Reasons Why People Leave Jobs

Why Should a Firm Hire Dedicated Development Team?

6 Medical Industry Jobs You Might Not Have Considered

What is staff augmentation for?

Copyright © 2023 Stay Informed Group

  • About Us
  • Contact Us
  • Disclaimer
  • Privacy Policy
  • DMCA Policy