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Are Scholarships Tax Deductible?

4 min read
Published January 15, 2025

Table of contents

Key Takeaways

  1. In general, money from a scholarship fund is not considered taxable when used for qualified expenses.

  2. Leftover money from your scholarship that exceeds the cost of qualified expenses may be considered part of your taxable gross income.

  3. You should consult a professional tax advisor for more information on your scholarship tax liability.

If you’re a scholarship recipient, you may wonder if your scholarship funds are tax deductible. To gain a better understanding of what deductions you can take, it is important to consider applicable tax laws.

What is a scholarship?

A scholarship is a sum of money that is awarded to students to help them with their education-related expenses. Scholarships can help make the cost of education a little less burdensome for students and families.

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Scholarships can help you cover the cost of tuition and other school fees. But a scholarship could also be used to buy textbooks, cover room and board, or purchase a school meal plan. And unlike a student loan, you generally do not have to pay back scholarship funds.

Are scholarships tax deductible?

The United States has some tax rules that you should be aware of if you are a scholarship student. The good news is that typically the Internal Revenue Service (IRS), does not see scholarships as income (which means it's not taxable). So, in some cases, you may not have to worry about paying taxes on the amount you have been awarded.

Scholarship money can sometimes count as taxable income

There are exceptions where a scholarship may sometimes be included in your tax calculation. If you use the scholarship to cover qualified education expenses like tuition, fees, books, supplies, and equipment, you are in the clear. Scholarship funds used for these items are not taxed according to information from the IRS.

 

However, if you decide to use part or all of the scholarship for things not strictly related to education (like travel or recreation) then the situation changes. In these cases, the IRS may consider that amount taxable income and you should declare it when you fill out your tax return.

Qualified education expenses are not taxable

The key to having a tax-free scholarship is that the expenses the scholarship covers must be required of all students in your program. They can't be things that go beyond what is needed to satisfy your program requirements. You can review what counts as a qualified education expense on the Internal Revenue Service’s website.

It’s important to note that even if the scholarship covers costs such as accommodation or food (expenses that are not directly related to tuition but are still essential for a student), there may be tax implications.

Some common student expenses are taxable

If you have scholarship money left over after covering qualified educational expenses, you may need to include the remainder as part of your gross taxable income. According to the IRS, scholarship money may add to your tax liability when used to pay for:

 

  • Room and board
  • Travel
  • Research
  • Other non-qualified expenses 

It's crucial that you keep all receipts and documents related to your education expenses. They may come in handy in the future, especially if you ever get audited.

 

The best way forward is always to educate yourself. You should consult a tax expert or an accountant who is familiar with tax laws relating to grant and scholarship funds.

Other financial aid information you need to know

In addition to scholarships, you may receive other types of financial aid. For example:

 

  • Student loans: This is money that you will have to pay back in the future. You can take a deduction for any interest paid on the student loan during the tax year, according to the Federal Student Aid website.
  • Grants: Unlike scholarships, grants are often linked to specific projects or research. Be aware that they may have different tax rules.

Practical advice on scholarships and taxes

If you are in doubt about how to handle your scholarship from a tax perspective, here are some tips:

 

  • Get help: Talk to an accountant or tax advisor.
  • Use online resources: There are many places where you can get tips and advice, including the Internal Revenue Service’s own website. This can be a good starting point.
  • University help centers: Some universities may offer free or low-cost tax advice services for students.

Scholarships can be a big help for students. But as with everything, it’s important to be informed and prepared. Remember, if you have questions or uncertainties, always ask a tax expert for advice.

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