What would happen if I didn't report an outside scholarship?

[ClaremontMom]

I’m no tax expert by any stretch of the imagination, but this discussion had me curious and googling for information. This is what I found. (This only addresses about reporting and filing with the IRS NOT about what you need to report to the school)

This is the information I found in regards to whether a scholarship is taxable:

from http://www.irs.gov/publications/p970/ch01.html
A scholarship or fellowship grant is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.

A scholarship or fellowship grant is tax free only to the extent:

It does not exceed your expenses;

It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and

It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship. For exceptions, see Payment for services, later.

And whether you have to report it:

also from http://www.irs.gov/publications/p970/ch01.html

Whether you must report your scholarship or fellowship grant depends on whether you must file a return and whether any part of your scholarship or fellowship grant is taxable.

If your only income is a completely tax-free scholarship or fellowship grant, you do not have to file a tax return and no reporting is necessary. If all or part of your scholarship or fellowship grant is taxable and you are required to file a tax return,

And whether a payor must report it.

found here: http://www.irs.gov/Individuals/International-Taxpayers/Withholding-Federal-Income-Tax-on-Scholarships,-Fellowships,-and-Grants-Paid-to-Aliens

All amounts paid to U.S. CITIZENS and RESIDENT ALIENS in the form of scholarships, fellowships, grants, and financial aid are not required to be reported to the IRS by the payors. (IRS Notice 87-31)

[annoyingdad]

It does not exceed your expenses;

This statement is incomplete, I would think it should say qualified expenses. I’m surprised there is a section in Pub 970 that includes this line. The qualified expenses for the purpose of making scholarships/grants tax free are only tuition, mandatory fees and required books and supplies(QEE for this purpose and the purpose of the AOTC).

[ClaremontMom]

@annoyingdad - I just didn’t include the part that expands on that but for completeness here it is: (And I think they meant to imply qualified expenses, but just didn’t include it on that line)

Also from http://www.irs.gov/publications/p970/ch01.html

Qualified education expenses. For purposes of tax-free scholarships and fellowship grants, these are expenses for:
Tuition and fees required to enroll at or attend an eligible educational institution; and

Course-related expenses, such as fees, books, supplies, and equipment that are required for the courses at the eligible educational institution. These items must be required of all students in your course of instruction.

Expenses that do not qualify. Qualified education expenses do not include the cost of:
Room and board,

Travel,

Research

Clerical help, or

Equipment and other expenses that are not required for enrollment in or attendance at an eligible educational institution.

[thumper1]

@ClaremontMom

You are talking about reporting the scholarship for TAX purposes.

The OP is asking whether he has to report his outside scholarship to Harvard, and the answer is YES…he must report it.

The receipt of this outside scholarship reduces his financial need. If he doesn’t report it, he I’d taking need based aid, some of it federally funded, while knowingly providing false (or incomplete) information to the college. This is considered fraud.

[ClaremontMom]

Yes I know @thumper1 I even made that disclaimer at the start of my post. I stated I was only addressing the IRS questions that came up.

[Madison85]

@angelonacloud: Are your parents allowing you to go to Harvard even though it is 8 hours from home?

[Madison85]

You may owe income tax on your scholarships and grants that exceed the standard deduction, tuition, fees, books. So be sure to save any ‘extra’ money to avoid a problem next April 15th with paying any federal and state(s) income taxes.

[twoinanddone]

Since it is only $3750 per year (you said $7500 split over two years), Harvard may not penalize you. Another poster said a few weeks ago that Harvard allowed the student up to $6000? in outside scholarships before reducing the Harvard grants for things like computers and books. Look into it, and you may find you are worried about nothing as you won’t be penalized.

It’s rather a large scholarship to ignore. You really do jeopardize future FA if you do not follow the rules, sign the award acceptance, sign for the Pell grant. Not worth the risk in my book, but it is your decision. You are the one responsible for reporting the scholarship, not your parents, not your relatives, not ‘everyone’ who is telling you to break the rules.

My nephew and my kids all received the same $2000 outside scholarship last year. My sister said they didn’t report it and I said we did. It didn’t matter because my kids didn’t take the Stafford loans so it wasn’t a case of us benefiting from not reporting it. I just felt better reporting it. Also reported it on the taxes, and again there was no benefit or tax owed. Just following the rules.

[jym626]

If you get a 1099 from your scholarship award it will show up as income for the following years taxes. Be honest.