<p>Before I begin, let me first say that I am not complaining about our circumstances but merely wanting to call attention to something that I only became aware of when doing my taxes this year and am not sure that many people are aware of. Please understand I am just venting at the system not the circumstances.</p>
<p>As many of you know, my son was the winner of a merit scholarship last year that covers everything;tuition,room, board, books, living expenses, his laptop and summer travel for four years. For that we are obviously grateful and knew going in that there would be some tax consequences as a result of this.</p>
<p>What really set me off though was when I discovered when reading through the 83 page IRS code about scholarships, that athletic scholarships have absolutely NO TAX CONSEQUENCES. </p>
<p>In a merit scholarship, anything beyond tuition, books and fees (as well as a laptop if it is required for all students) is taxable. Don't misunderstand me, I am not complaining about the tax consequences for room and board, living stipend and travel because it is far less than what my out of pocket would have been.</p>
<p>My anger/frustration stems from the message that our legislature is sending to the future leaders of our land. Are they telling them that their accomplishments are not as valued as those on a football field or basketball court? If not, then why do athletes get a completely free ride and scholars have to pay their "fair share?" </p>
<p>And we wonder why things are in the shape they are in?</p>
<p>The average pay for new teachers in the U.S. in 2004: $30,496
The minimum salary for an NFL rookie: $230,000</p>
<p>I should preface this by saying that I have football fever and have been a season ticket holder since my team came to town. Yes, yes, yes, we all hear about the short careers that many NFL players have, but is that really a reason to pay them such extravagant salaries? I realize they risk injury to their bodies each time they go to practice or to a game. Sadly, teachers are also becoming more at risk when they enter a school building. Just today, I learned that a student who attended our school just two years ago (I'm a school nurse) murdered someone last night. This boy is a high school sophomore and he has ended the life of a human and now his life is over, too. At the school next door, where my best friend is the school nurse, a child was being led away by police for carrying a knife to school. Teaching is not a low-risk job and we've got people who pour their hearts and souls into it. I don't know why things are so unbalanced. </p>
<p>I know I got off the subject and for that I apologize, but the professional sports are a continuation of college sports. It begins skewed and continues along that route. Why is it more important for an athlete to get the benefit of tax-free monies than a student who has worked his butt off in the classroom versus the playing field? You're absolutely right ... it's not fair!</p>
<p>eadad, are you certain your information is accurate? My D gets both - merit money - academics AND partial athletic scholarship. Everything is covered, including books and fees. Her 1098 shows only the total figures - it does not break out which funds cover tuition and which do not. </p>
<p>Even the bill from the school doesn't break it out - there are line items for tuition, room & board, all the fees, and then the scholarships under - you cannot really separate how each line item of funding addresses each cost component. </p>
<p>Can you tell me the section of the code where this appears on Pg. 83? I couldn't find it in Publication 17.</p>
<p>I've been wondering about this for years. I just couldn't imagine that athletes on a full ride would pay tax on anything over tuition because they simply don't have the money. Yet I know that merit scholarships that give money for anything over tuitions is taxable. I can't possibly understand how this is fair.</p>
<p>My son received a full tuition scholarship, and so the other smaller scholarships that he received become taxable since they are now over and above what tuition is. I too, am not complaining and will gladly pay the tax on the excess, but I can't understand why scholarship athletes are not subject to the same rules.</p>
<p>dstark, I cannot remember the numbers, but it shows lumped together on the 1098. I can find no reference to this in the IRS code. Perhaps I'm reading the wrong IRS pub.</p>
<p>EADad, welcome to the arcane world of scholarships' taxability. I have posted a few times on this precise issue. The taxability of scholarships does indeed create a few negative issues. While no one is complaining about owing taxes, especially when considering the plight of families that have to pay all or a substantial part of the education bill. The biggest issue is that students who are on full scholarships -full merit scholarships a la Morehead or zero EFC students- might be unable to pay the taxes while in school. Since certain grants or scholarships are reduced by any amount of earnings, a student might be unable to work to pay his taxes. The only solution is to borrow or hope his parents can contribute. The good news is that the taxes should be quite low after using the deductions and exemptions. </p>
<p>Now, on the issue of athletic scholarships ... I do not think that Publication 970 -the 83 pages EAdad refers to- indicates that athletic scholarships are always tax-free. I think that one needs to start reading the explanations on page 5 where the IRS establishes the differences between taxable and non-taxable scholarships. At the beginning of page 6, the IRS notes that certain expenses do not qualify as expenses. Then, they note that athletic are tax free if it meets the requirements discussed above [in the earlier lines]. This would lead me to believe that the athletic scholarships are not taxable, but in the same manner as the other scholarships by having to comply with the same restrictions. </p>
<p>FWIW, be prepared to play what-if games in 2006 to maximize the impact of the student's personal exemption. The definition of dependency is a lot more complicated than establishing how much income needs to be reported. </p>
<p>His own rate. And as xiggi points out, it would be very low if he had no other income since it would be only on the amount of room and board, books, etc. Tuition is the expensive part. </p>
<p>Xiggi: what did you mean by your last paragraph? What is PM?</p>
<p>Athletic scholarships are not tax free any more than any other scholarship that covers more than the tuition and related expenses. I know a few full ride athletes and they do have to pay taxes. For those athletes who will have problems paying those amounts, the athletic department or the coach makes sure that they have a "job" that pays so much a week usually checking ids at the gym, manning the towel window, or just doing security in the gym. Sometimes the jobs are questionable. I know my son had a job (pretty much mandatory) where he had to help out other college teams in setting up for the athletic events, being a runner, a marshall, setting up cones, many of the chores that just need to be done when the college hosts an athletic event. He was paid for the job, but he pretty much had to do it whether he wanted to do so or not. He was also expected to enthusiastically be on the sidelines at times for sports other than his own. For students on athletic scholarships (none given at S's school) that money could be used to offset taxes owed. For schools with top level teams, like Duke's basketball team, the coach pretty much takes care of all of the players' needs. The last thing he needs is for one of his players to run afoul of the IRS, so that is an item definitely taken care of, in addition to other services including someone to make sure the guy does not break any NCAA rules inadvertantly. In very top level athletics, many of the athletes (particularly in certain sports) come from background where it is unreasonable to expect these kids to be able to know how to handle these issues.</p>
<p>One piece of additional information worth mentioning: despite that the scholarship income is reportable (subject to deductions for allowable expenses), it does not affect the FAFSA calculations. The income is reported but the "engine" backs it out when determining the EFC.</p>
<p>I don't know whether or not athletic scholarships over and above tuition are taxable, but there is another issue raised here - what our society values more. Our school is only 4 years old, and the UIL academic team is sending more kids than ever to state this year - without an administrator present. Yet the day our basketball team was in the state playoffs, you couldn't find an administrator in the building, because they were on the way to the game. When I objected that the few athletes to be inducted into honor society couldn't miss one game to attend induction because of threats from coaches, I was told to change the date to a Wednesday night, since there are no athletics, because that was church night. I answered that I would refer the parental phone calls about the kids missing church to the administration. It's better to miss church than one game in 4 years for an honor induction! Needless to say, those 3 kids didn't come.</p>
<p>I'm not sure I understand what "deductions" would be allowable. Let's say there's an athlete with a full ride. The value of tuition is not taxable, but room and board, books, living expenses, etc. are. Say that comes to $10,800 (being conservative and knowing where this is going.) If this person is a dependent on someone elses return, the only deduction allowed is $800 standard deduction because this is unearned income. That leaves a tax of $1000. </p>
<p>I suppose you could argue that he is not a dependent of anybody elses since his parents are not providing more than 50% of his support. But then neither is he. But even if he claims himself, that still leaves more than $5000 taxable.</p>
<p>So what Jamimom is saying is that the school gives them a job (and I have trouble believing that some of those basketball and football players I see on tv are doing odd jobs) that makes at least that and then holds the money and sends the tax in?</p>
<p>
[quote]
It's better to miss church than one game in 4 years for an honor induction! Needless to say, those 3 kids didn't come.
[/quote]
It is a tough situation ... here's a devil's advocate argument. These 3 kids are part of a team of 12 kids that have earned a shot at the playoffs (or band competition, or debate competition) and to have those 3 kids miss the game effects not only them but all 12 kids on the team. In addition, the honors event is a school activity which I am favoring over church (a non school activity) if the date is moved. That sounds like a reasonable approach ... I might not agree ... but it seems reasonable to me.</p>
<p>The conservative parents in TX would have the phones ringing off the hook about their child having a conflict with church - this is the Bible Belt, after all! Three kids - 3 different teams, each would miss one kid once time in 4 years. I am a former coach and athlete, and can tell you that academics really don't count in this society, other than to put them on your resume.</p>
<p>For all your tax questions on scholarships and fellowships, go to the new thread that I just made entitled, "Tax Aspects of Scholarships and Fellowships." It should answer all your questions and prevent some misinformation that I have seen on this thread.</p>