<p>D recently won an essay competition, the award for which was a sizeable chunk of scholarship money. (She is a high school senior, age 17 if that matters.) They said they would be sending her a W-9.</p>
<p>What are the tax implications when your S or D wins a scholarship? D is claimed as a dependent for our taxes and has no appreciable income of her own.</p>
<p>Scholarship money that is used to pay qualified education expenses (mainly tuition and some required fees) is not taxable. Any scholarship money in excess of tuition/fees is taxable income. Scholarships/fees in excess of tuition/fees is taxable income to your daughter. She can still do a tax return even if you claim her as a dependent. The tax rules for education are in IRS publication 970.
<a href=“http://www.irs.ustreas.gov/pub/irs-pdf/p970.pdf[/url]”>http://www.irs.ustreas.gov/pub/irs-pdf/p970.pdf</a></p>
<p>This is the 2008 publication, I don’t think the 2009 is out yet. Page 5-7 related to taxable scholarships grants.</p>
<p>Will she be receiving the money this year or when she is actually in college? The qualified expenses have to occur in the same year as the scholarship is received for it to be considered non taxable. So if it is being received this year then it will all be taxable. Hopefully she will not receive it until she is in college so that it may be offset by tuition/fees.</p>
<p>As a college student the taxable part of scholarships/grants is reported on the same line as earned income and you write SCH and the amount of the taxable scholarship to the left of the writing on that line (the line that has W2s etc). It is treated as earned income. Even if someone is claimed on someone else’s return as a dependent they still have her own personal exemption of @ $5450 (2008 numbers) so any amount under that will not be taxable. </p>
<p>I am honestly not sure if there is any difference in how you file and report it if the money is received while she is still a high school student. Maybe someone else will chime in with that information.</p>
<p>My daughter won some scholarship money in a speech contest, but she received it the year before she actually began college. She also received a W-9. We just had her declare it on her tax return as “other income” – her earned income that year was very low, so the added scholarship money didn’t amount to enough to put her in a taxable income bracket anyway… so in practical effect it didn’t matter.</p>
<p>If your daughter’s scholarship was large enough to actually incur taxes, that’s another question. If it was me, and it there was just a little in taxes due, I’d probably just pay it and be done with it. On the other hand, if the taxes would be significant, it might be good to talk to a professional about how to deal with that.</p>
<p>I don’t think that scholarships that include housing or books are taxable, either. </p>
<p>I doubt those kids receiving full athletic scholarships are paying taxes on their scholarships.</p>
<p>Yes scholarships for room and board *are *taxable. The IRS is very specific about that. Any scholarships and grants (including need based grants such as the Pell/SEOG/ACG/SMART) over the amount of qualified expenses are taxable income. That would apply to athletic scholarships as well. from IRS 970.</p>
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<p>Even some required fees paid by scholarships are taxable. My daughter’s school has 3 fees that are required for all student but are not eligible to be used for tax free scholarship purposes.</p>
<p>The only tax benefit that room and board is eligible for is tax free 529 account distributions.</p>
<p>Yes, mom2collegekids, as swimcatsmom says the portion of scholarships that exceeds tuition and fees is taxable. My son gets quite a bit of need-based aid, which covers more than just the costs of tuition and mandatory fees. It covers a big chunk of his room and board as well. He does have to declare that, and last year even though his income alone was not enough that he would normally pay any taxes, he did have a tax liability of a couple hundred bucks due to the scholarship funds the exceeded tuition and fees. Interestingly our state does exclude even the portion of scholarship aid that goes toward room and board from taxation, but the IRS does not.</p>
<p>You are lucky. Our state does not exclude the taxable scholarship/grant income. Last year my daughter’s state tax liability was higher than her Federal because of her scholarships/grants. </p>
<p>Still better to have them and pay the tax than than not have them :D</p>
<p>No kidding, SCM! If paying a few hundred in taxes is the cost of all that FA, heck, I’ll pay it. :)</p>
<p>I was pleasantly surprised last year when I learned that our state excluded education grants/scholarships - even when used for room&board. My dopey tax preparation software didn’t know that though. I was lucky to run across it by accident when I was speed-reading over the instruction booklet for some other thing entirely. It was buried in a list of subtractions that “apply to only a few people” – then there’s a list of all kinds of arcane items, and buried down at the bottom it says “scholarship awards used for housing expenses.” I showed it to 2 friends who’d never seen it either. Boy, did they love me after that!</p>
<p>I have a question. Do your kids’ schools tell you about the tax liability? I know they send the 1098, but do they make a point of explaining tax liability to students? Just curious.</p>
<p>I don’t think our two schools do. At my daughter’s school web site it says consult your accountant, tax professional or the IRS. Doesn’t actually give a heads up that scholarships or grants might be taxable.</p>
<p>Neither of my kids’ schools explain it either.</p>
<p>kelsmom, my daughter’s school explains it on their webpage, but it isn’t in the fiinancial aid handbook for parents. </p>
<p>It’s very confusing because typically they issue her a end-of-year tax document, then the next year they amend it because they want to show her financial aid on their books in a different year. We didn’t understand this when she was a sophomore and ended up paying tax on the same aid twice.</p>
<p>I guess if you need help, you have to go to a real accountant. Even the people at a well-known tax preparation company we went to did not realize that room and board was taxable. I kept insisting, so finally they got a supervisor who looked up the rules and showed us all how to do it. </p>
<p>Still, though, it’s a good problem to have.</p>
<p>so, does this mean that full ride D1 athletic scholarships are taxable, or just the room and board portion? There seems to be quite a bit of debate on this.</p>
<p>Three years old thread!</p>
<p>There is no debate about it that I’m aware of. The part of the scholarship (and any need based grant money) used to pay for qualified education expenses (basically tuition, most required fees (there are some exceptions), and required books) is not taxable income. Any part of a scholarship used to pay for non qualified education expenses (room and board, travel, miscellaneous/personal expenses) is taxable income to the student.</p>
<p>IRS 970 has all the details.</p>
<p>please use old threads for reference only. closing thread</p>