Receiving scholarships and grants can help you get through school without worrying about expenses. Still, many are not designed to be tax-free. If you think about it, when you can make money in any way, the government wants it included in your income so they can receive taxes on it. However, some are not taxed, and as such, they do not need to be added to your yearly income amounts. 

Unless you are going into business or accounting, it may be challenging to understand the differences between taxable and non-taxable scholarships and grants. If you step back, take a deep breath, and take your time with this article, it will be explained in an easy-to-understand way.

Let’s dig into this further to discover how to file for scholarships and grants.

Non-Taxable Scholarships And Grants

Grants and scholarships are designed to do two things. One is to give you some cash awards to help pay off your student expenses. That is to say, the lender provides the money to the school to help cover your tuition costs. The second thing they are designed for is to be tax deducible. However, the IRS only designated this if they met the following criteria. 

• If you are obtaining an advanced degree from an accredited college or university.
• If the amount received does not exceed the amount of money needed for your college expenses.
• The extra expenses are not designated for other required costs, such as room and board.
• If it wasn’t paid in return for teaching or researching tasks.

That’s it. If any of these apply to you, your grants and scholarships will not be taxable. That means you are not required to add the amounts received into your yearly income on your tax forms. 

Taxable Scholarships And Grants

As a general rule, if your scholarships and grants are over the amount you need to pay for your tuition costs, you will be liable to pay taxes on them. You will know this has happened when the school sends you a healthy check that is over and above what is needed. 

However, there are some things that the IRS will deem to be non-taxable, as well as the tuition, which is required items such as books and study supplies. Let’s break it down a little more so you can understand what a taxable scholarship and grant is.

• If the money was sent to cover your room and board.
• If the money was sent to help cover living expenses, such as bathroom supplies.
• If the money was sent to help cover your expenses for teaching or researching

That’s it. The only part of your school money you will have to pay taxes on is those given to you that are not needed for the tuition or qualified school expenses. What it means to be an eligible expense is something that all the other students in your class are required to have, such as a textbook.

Conclusion

Paying taxes on your income is not something new. It is an aspect of living in the US that is simply a way of life for everyone with an income coming in, even for some that don’t. The point is that if your scholarships and grants are more than you need, they will be taxed. 

Check the two lists above to see which category you fall in and if you need to pay taxes on it, add it into your total income box so it can be accounted for. Otherwise, you may face some fines and penalties later on when the IRS tax specialists find the mistake. And believe me, they will find it eventually.